Country-by-Country Reporting: a New Approach towards Book-Tax Conformity

Abstract

This article argues that a higher degree of book-tax conformity can be achieved through improved documentation requirements and in particular countryby- country reporting. The separate systems for financial and tax accounting use different definition of profits leading to confusion, less transparency and simplicity and in the end distrust in corporate governance. At the same time higher book-tax conformity cannot be achieved without incurring different costs and sacrificing information value of earnings. In addition, financial and tax accounting build on different founding principles and the question is whether an alignment of these two systems is possible at all. This article shows how country-by-country reporting and other similar initiatives make it possible to achieve higher book-tax conformity, whilst at the same time avoid the pitfalls and the costs usually caused by the increased convergence.