Deferred taxes in Russian and foreign practice: Problems and possible remedies

Abstract

Modern accounting theory and practice and analysis of deferred taxes should be more focused on value depreciation procedure, evaluation of tax behavior, and calculation of economic coefficients. In this regard, deferred taxation theory development turns out to be a relevant issue by outlining unresolved controversial issues with their appropriate remedies. The study is aimed at identifying the key issues in accounting and analysis of deferred taxes and justifying the proposals to improve the registration and interpretation of tax effects. The paper specifies the nature of deferred taxes in a broad and narrow sense. The essence of tax assets, criteria of their recognition and ability to transfer the cost as expenses vs. income are disclosed. The concepts of temporary and timing differences are theoretically formalized in the case study of emerging taxable differences. Two methodologies are developed for the deferred tax assets depreciation procedure, and a methodological mechanism of creation and restoration of valuation allowance is explained in the context of international experience. The informational significance and importance of deferred taxes in economic (investment) decision making are characterized, and company’s tax behavior is described in the context of the changes in the corporate tax rate and the amount of deferred taxes in the balance sheet. The economic analysis reasons the ambiguous influence of deferred taxes elimination due to the indirect “effects” that arise. The results of the work contribute to the development of accounting theory and methodology, which is useful for a wide range of experts, specialized in financial accounting, auditing, taxation, economic analysis, and other areas. Further research is seen to be connected with theoretical substantiation of the deferred taxation theory and its proof of applicability, as well as the development of a methodology for analyzing net deferred tax positions.

Keywords: deferred taxes, temporary differences, timing differences, deferred taxation, tax accounting, accounting, accounting gaps, asset-liability method, deferral method, depreciation, economic analysis, tax behavior

For citation

Aksent’ev A.A. Deferred taxes in Russian and foreign practice: problems and possible remedies. Perm University Herald. Economy, 2022, vol. 17, no. 2, pp. 221–244. DOI 10.17072/1994-9960-2022-2-221-244

References

1. Aksent'ev A.A. Sushchnost' i klassifikatsiya otlozhennykh nalogov [Essence and classification of deferred taxes]. Vestnik Permskogo universiteta. Seriya «Ekonomika» [Perm University Herald. Economy], 2021, vol. 16, no. 4, pp. 421–448. (In Russian). DOI: 17072/1994-9960-2021-4-421-448
2. Aksent'ev A.A. Kontseptsii ucheta otlozhennykh nalogov i ikh svyaz' s bukhgalterskimi ideologiyami [Deferred tax accounting concepts and their bond to the accounting ideologies]. Analiz. Audit [Accounting. Analysis. Auditing], 2021, vol. 8, no. 4, pp. 34–50. (In Russian). DOI: 10.26794/2408-9303-2021-8-4-34-50
3. Olomskaya E.V., Aksent'ev A.A. Ustranenie «probelov» v bukhgalterskom i nalogovom uchete: komparativnyi analiz zarubezhnogo opyta i rossiiskoi praktiki [Filling in the gaps in bookkeeping and tax accounting: A comparative analysis of international and Russian practices]. Mezhdunarodnyi bukhgalterskii uchet [International Accounting], 2021, vol. 24, no. 3 (477), pp. 338–368. (In Russian). DOI: 24891/ia.24.3.338
4. Olomskaya E.V., Aksent'ev A.A. PBU 18/02: Osnovy primeneniya balansovogo metoda [Russian Accounting Standard (PBU 18/02: Principles on the balance method use]. Mezhdunarodnyi bukhgalterskii uchet [International Accounting], 2020, vol. 23, no. 12 (474), pp. 1356–1382. (In Russian). DOI: 24891/ia.23.12.1356
5. Mudjiyanti R. The Effect of Tax Planning, Ownership Structure, and Deferred Tax Expense on Earning Proceedings of the 5th International Conference on Community Development (AMCA 2018), 2018, vol. 231, pp. 379–381. DOI: 2991/amca-18.2018.104
6. Persada A.E., Martani D. Analisis faktor yang mempengaruhi book tax gap dan pengaruhnya terhadap persistensi laba. Jurnal Akuntansi dan Keuangan Indonesia, 2010, vol. 7, no. 2, hal 205–221. (In Indonesian). Available at: http://journal.ui.ac.id/index.php/jaki/article/view/2789 (access date 15.09.2021).
7. Vuĉković-Milutinović S., Lukić R. Analysis of Deferred Taxes in the Business Environment in Serbia. Seria Management, 2013, vol. 16, no. 1, pp. 25–37.
8. Sutopo B., Adiati A.K., Siddi P. Earnings and firm value: The moderating impact of large deferred taxes and large accruals in Indonesia. Business: Theory and Practice, 2021, vol. 22, no. 2, pp. 241–248. DOI: 3846/btp.2021.11951
9. Karjalainen J., Kasanen E., Kinnunen J., Niskanen J. Dividends and tax avoidance as drivers of earnings management: Evidence from dividend-paying private SMEs in Finland. Journal of Small Business Management, 2021, 34 p. DOI: 1080/00472778.2020.1824526
10. Shchepot'ev A.V. Vliyanie otlozhennykh nalogovykh aktivov i otlozhennykh nalogovykh obyazatel'stv na velichinu stoimosti deistvuyushchego biznesa [Impact of deferred taxes on the value of the acting business]. Imushchestvennye otnosheniya v Rossiiskoi Federatsii [Property Relations in the Russian Federation], 2018, no. 4 (199), pp. 33–39. (In Russian).
11. Kolchugin S.V., Kopenkina A.A. Vliyanie otlozhennykh nalogov na pokazateli finansovogo analiza [Impact of deferred taxes on financial analysis]. Problemy ucheta i finansov [Accounting and Financial Issues], 2014, no. 4 (16), pp. 44–47. (In Russian).
12. Kruglyak Z.I. Otlozhennye nalogi: osobennosti ucheta i analiza v sel'skokhozyaistvennykh organizatsiyakh [Deferred taxes: Features of accounting and analysis in agricultural organizations]. Politematicheskii setevoi elektronnyi nauchnyi zhurnal Kubanskogo gosudarstvennogo agrarnogo universiteta [Polythematic Online Scientific Journal of Kuban State Agrarian University], 2016, no. 118, pp. 469–485. (In Russian).
13. Guia L.D., Dantas J.A. Value relevance of deferred tax assets in the Brazilian banking industry. Revista Contabilidade & Finanças, 2020, vol. 31, no. 82, pp. 33–49. DOI: 1590/1808-057x201808060
14. Rathke A.A.T., Rezende A.J., Antônio R.M., Moraes M.B.C. Last chance for a big bath: Managing deferred taxes under IAS 12 in Brazilian listed firms. Revista Contabilidade & Finanças, 2019, vol. 30, no. 80, pp. 268–281. DOI: 1590/1808-057x201806340
15. Hanlon M. The persistence and pricing of earnings, accruals, and cash flows when firms have large book-tax differences. The Accounting Review, 2005, vol. 80, no. 1, pp. 137–166.
16. Poterba J., Rao N., Seidman J.K. Deferred tax positions and incentives for corporate behavior around corporate tax changes. National Tax Journal, 2011, vol. 64, no. 1, pp. 27–57. DOI: 17310/ntj.2011.1.02
17. Bauman C.C., Bauman M.P., Halsey R.F. Do Firms Use the Deferred Tax Asset Valuation Allowance to Manage Earnings? Journal of the American Taxation Association, 2001, vol. 23, no. 1, pp. 27–48. DOI: 2139/ssrn.239054
18. Musazi B., Makkawi B. The controversy of deferred tax assets and liabilities classifications and some Journal of Finance and Accountancy, 2019, vol. 25. 19 p. Available at: http://www.aabri.com/manuscripts/182968.pdf (access date 16.11.2021).
19. Bohušová H., Svoboda P., Semerádová L. Deferred tax for tax planning in the Czech agricultural companies. Agricultural Economics – Czech, 2019, vol. 65, no. 8, pp. 349–358. DOI: 17221/312/2018-AGRICECON
20. Chludek A.K. On the Relation of Deferred Taxes and Tax Cash Flow (April 28, 2011). DOI: 2139/ssrn.1778265
21. Sebestikova V., Krzikallova K. The impact of deferred tax on company valuations in the case of mergers. Zeszyty Teoretyczne Rachunkowości, 2017, vol. 94, no. 150, pp. 131–144. DOI: 5604/01.3001.0010.4998
22. Colley R., Rue J., Volkan A. Deferred Taxes in the Context of the Unit Problem. Journal of Finance and Accountancy, 2010, vol. 2, 11 p. Available at: https://www.aabri.com/manuscripts/09231.pdf (access date 19.11.2021).
23. Colley R., Rue J., Volkan A. Deferred Taxes Revisited. Journal of Business & Economics Research, 2004, vol. 2, no. 8, pp. 13–24. DOI: 19030/jber.v2i8.2907
24. Burgess D.O., Conrecode J.R., Valencia A., Volkan A.G. Simplifying Deferred Taxes. ABD Journal, 2012, vol. 4, no. 2, pp. 20–36.
25. Skinner D.J. The rise of deferred tax assets in Japan: The role of deferred tax accounting in the Japanese banking crisis. Journal of Accounting and Economics, 2008, vol. 46, no. 2-3, pp. 218–239. DOI: 1016/j.jacceco.2008.07.003

Show full text