Businesses in Albania must follow financial accounting and reporting rules designed to provide investors with a true and fair view of the company's financial position. These rules increase the transparency and international comparability of the results of a company or group and are a strong step towards the foreign market. International Accounting Standards (IAS) and National Accounting Standards (NAS) are widely used by multinational corporations (MNEs).
Financial accounting and reporting rules are rapidly shifting from the traditional legal concepts used by commercial and tax laws. They are increasingly based on a fair presentation approach. The results presented for financial purposes may differ significantly from the profit shown in each company's books or the result of tax returns. MNE therefore poses a risk of facing unjustified demands on the adjustment of tax revenue or on the condition that the profits shown for financial purposes in that country are taxable in that country.
The national and international business community believes that it is important for tax authorities and policy-makers to understand the reasons why the results in a financial statement of a business or group differ from the taxable result of such an enterprise or group.
Different approaches to determining taxable profits
Some European countries follow the concept of addiction in determining taxable outcomes. This means that profits from commercial accounts are taken into account as the primary basis for tax assessment. Subject to the relevant tax rules, certain tax adjustments are required to calculate taxable profits.
Other countries, especially those with common traditions, follow the notion of independence. Two separate rules apply: one for commercial achievements and one for taxation purposes. Such countries do not rely heavily on the commercial accounting rules of taxation, which can result in significant differences between the two systems.
Both systems have advantages and shortcomings. With separate taxation rules, two sets of rules should be used that may increase the compliance burden for businesses. It may be easier to deviate from taxation objectives than the principles followed in commercial accounting. Even though taxation is based on commercial invoices, certain tax breaks are inevitable.
For now, it would be unrealistic to request a common approach. Each country is free to decide whether the determination of taxable profits is primarily based on commercial invoices or whether it comes from the application of a separate tax regime.
Countries have the right to follow different approaches to the relationship between trade and taxation (dependency / independence). Both approaches have advantages and shortcomings. However, in both cases, solid principles of taxation should not be ignored.
Differences between trading accounting and capital market rules
The Commercial Act provides for how to determine the financial results of a single business. These rules are often governed by separate accounting laws. The accounting and reporting rules are based on the principle of fair presentation and are primarily aimed at increasing the transparency of investors. Standards should be applied consistently to the whole group. Sometimes, businesses are given the choice of using a particular method or rule. Uniform application is investigated by external auditors and enforced by the supervisory bodies. Unique accounting and reporting standards for companies increase transparency and comparability, especially for investors. Convergence of the principles governing existing accounting and reporting standards is desirable in order to increase comparability and to facilitate multiple lists. Nevertheless, account should be taken of the potential tax consequences of companies, especially in countries based on commercial accounts, as the primary basis for tax assessment and convergence should not deteriorate the tax situation of businesses
Different approaches and different purposes  Commercial, financial and taxation rules have their own goals and therefore expect and accept the differences between the results.
o Trade settlement rules are used to determine the commercial results of a single business entity. In particular, it is determined whether a gain or loss has been incurred for a given period. The rules may be part of the country's commercial or company law. Their purpose is to protect the rights of shareholders and creditors and, consequently, the precautionary principle occupies an important place.
o Financial Accounting and Reporting Rules are part of a country's capital market regulation. Their aim is to provide investors (and other stakeholders) with a reliable and accurate picture of the financial position of the economic entity (group) at a given moment (economic situation, performance and cash flow). The guiding principle is "fair presentation" or "fair and fair view". In this respect, other important rules are the "material form", "market valuation" and, as a consequence of the true and fair, the actual ban on hidden reserves
o Defining tax rules is used to determine taxable profits. Their purpose is to determine the tax liability of companies for the tax authority concerned. The rules must be prone to compliance by taxpayers and the control and enforcement of tax authorities. Corporate tax rules are generally designed to preserve economic neutrality, so business decisions can not be unduly influenced by fiscal measures. The rules may also include non-budgetary targets. Tax laws reflect the general principles of taxation, such as non-discrimination or economic capacity taxation, but also practical considerations, such as access to payment (payment), fairness (neutrality) of the various categories of tax payers, annual (loss carryovers, standardized depreciation ), long-term profitability (prudence, impartiality, valuation below market value) and other similar factors. For example, tax systems may impose special timing rules for the recognition (or deferment) of income, transfer of losses from other years and other rules in the field of taxation.
The approaches used to calculate commercial, financial and taxation considerations are used for various purposes. Although the relevant rules focus on the same general purpose (results of a business in a given period) it is important to understand that the existing concepts do not require rules in financial accounting and taxation
As a result of the claims of international capital markets (globalization) applied accounting and reporting standards are expected to result in some harmonization in the accounting and reporting area. On the other hand, while each country has its own taxation, implementing its own tax policy, similar harmonization of taxation rules is not expected. At the same time, the more the rules apply to financial accounting than the rules applied in taxation, and the more transparent the results of the group become, the more obvious the differences arising from the application of the two rules will become apparent. Tax authorities may not use the financial results of an entity (in the same country or third countries) as a pretext for adjusting the enterprise's taxable profits and for verifying the transfer price adjustments.
The rules applied to financial accounting and tax purposes may be significantly different and may lead to results that can not reasonably be compared. Tax administrations and decision-makers have to accept that the principles underlying financial accounting are not always compatible with the principles and practices applied in taxation. From a tax policy point of view it is important that tax rules should not be jeopardized by an incorrect extension of financial reporting obligations.
Internationally recognized accounting standards are considered as a coherent accounting and reporting rule for investors as "simultaneously an entity's financial position (balance sheet)
Some widely accepted principles in the field of taxation are clearly different from the concepts used for financial accounting and reporting purposes. In addition, tax laws often provide for non-financial purposes, such as individual incentives (R & D, special reserves, self-financing, attracting certain business activities, etc.). They can be designed to influence the behavior of companies in instinct Furthermore, the country's taxation system is a result of a policy decision-making process and therefore, in many cases, it is neither neutral to businesses nor a wholly internal consequence.
Tax and Financial Accounting Rules serve different purposes, serve different purposes and are based on different principles. Although both are used to measure the annual results of a business, the differences in results or the method used must be accepted. Financial accounting looks at the business as an economic entity, while taxation is usually based on a separate entity approach.
In the area of taxation and accounting, policy makers need to know these differences. Tax authorities should respect them and refrain from financial results from companies to tax adjustments.
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