International Planning Prevention Of Abuse -Myassignmenthelp.Com

Question: Discuss About The International Planning Prevention Of Abuse? Answer: Introduction In this report, income tax provisions and rules of corporate bodies have been taken into consideration. This report is prepared on the Woolworths company which has charged income tax and prepared its financial statements as per the income tax rules and regulations. After evaluating the annual report of company, it is evaluated that equity capital of company is accompanied with the three main parts namely, contributed capital, retained earnings and reserve of company. The equity capital of Woolworths Company is accompanied with the following parts. Woolworths Company has divided its equity capital into following parts Common Stock Other Accumulated profit Retained earnings or distributable profit Contributed capital of company- It is the amount of capital invested by company for the consideration of the ownership they take from the company (Woolworths Company, 2017). Retained earnings- It is the amount of profit collected by the company from its earned profit. It is the plugged back by company or distributed to its equity shareholders (Woolworths, 2017). Equity (Amount in dollar million) ($M) 2017 2016 Common stock 5615 5252 Retained earning 3797 3125 Total equity 114 94 Discussion of equity part of the company It is observed that Woolworths Company has increased its equity capital and retained earning throughout the time. It is a good indicator for company. However, accumulated earning has also increased throughout the time. Total equity capital of company has increased by 12% in 2017 as compared to last year data (Woolworths Company, 2017). Income tax expense is the amount of money which is needed to be paid by company on its earning to government. It is shown as charged on the profit in the books of account of company. It is observed that company has been paying high amount of taxes to government on its profit. Therefore, it requires implementing effective tax planning to reduce the tax payment (Woolworths Company, 2017). Particular(AUD $ in million) 2016 2017 Income tax expenses 520 650 Therefore, it could be inferred that Woolworths Company has increased its income tax expenses throughout the time. However, the tax implication has increased due to increase in its taxable profit (Saad, 2014). It is observed that Woolworths Company has been following income tax rules and regulations. Tax amount charged on the profit of company is done on the basis of taxation rules and regulations. On the other hand, between Taxes computation on the basis of tax rate implication on the profit earned by company is done by following accounting rules i.e. 30% of net taxable income of company (1534*30%)=660.2. On the other hand, income tax paid by company is AUD $ 650 million in 2017. There are several reasons which may allow results to differences between Taxes computation on the basis of tax rate implication on the profit earned by company from the tax computed on the basis of taxation rules (Woolworths Company, 2017). Recording of expenses and revenue of the company is different as per the accounting rules and regulations and income tax provisions and laws. For instance, recording of depreciation, bed debts, provisions of company are differently recorded as per the accounting rules and regulations and income tax provisions and laws. Therefore, it could be inferred that recording of expenses and revenue in the books of account is done after complying with the income tax rules and regulations which may differ from the accounting income computed by the accountant of company. The tax charged on the profit of company which is implicated as per the rules and regulations of income tax (Saad, 2014). After evaluating the annual report of Woolworths Company, it is evaluated that company records its deferred tax assets or liabilities in its books of account. Deferred tax assets is recorded when the tax charged as per the income tax rules and regulations is less than the tax computed as per the accounting rules. On the other hand, Deferred tax liabilities is recorded when the tax charged as per the income tax rules is more than the tax computed as per the accounting rules and regulation (Woolworths Company, 2017). It is evaluated that deferred tax is recognized by using balance sheet method and. This method is used for temporary differences between the carrying value of assets and liabilities of company and amount used for taxation object (Avi-Yonah, 2007). The deferred tax is not realised in the books of accounts of Eureka group holdings limited so it is not booked in the financial statement of accounts. In current year, deferred tax assets of Woolworths is AUD $ 372 million. Particular (AUD $ million) 2017 2016 Deferred tax assets 372 1110 Deferred tax is the amount of the provision which company keep in its books of account. It is observed that company needs to carry forward this tax amount to next year to set off it against with the future tax payment (De Broe, 2008). Current tax payable and current tax expenses of Eureka group holdings limited Income tax expenses are shown in the income statement of company. .It is observed that income tax charged in the profit and loss account is the tax implication on the current year profit. It is treated as expenses of company and deducted from the overall profit of company to identify the net profit. On the other hand, income tax payable is the amount of tax implication which is yet to be paid by company to government. It is the amount of liabilities which is shown in the liabilities side of company. This income tax payable could be related to either one year or all of the year. Therefore, it could be inferred that these both amount can never be equivalent to each other as it has their own purpose and shown under the different heading in different statements. Income tax charged on the Company is AUD $ 650 million. On the other hand, income tax payable by company is AUD $ 80 million (Yue, 2016). Particular(AUD $ in million) 2016 2017 Income tax payable 80 41 Income tax expense 650 520 Why income tax expenses is not same as the income tax payable There are several reasons which have resulted to differences between tax expenses and tax payable company. Income tax expenses are tax charged on the current year profit. Income tax payable is amount of total tax payable liabilities which company needs to pay to government. Income tax recorded in the profit and loss account. On the other hand, income tax payable is recorded in the balance sheet of company (De Broe, 2008). Is income tax expenses shown in the income statement is not equal to income tax paid in the cash flow statement? If not After analysing the annual report of company, it is observed that income tax expenses shown in the income statement is not equal to income tax paid in the cash flow statement. Why are the differences? Cash flow statement is accompanied with the detail of cash inflow and outflow from the business in current year irrespective of the fact whether it relates to present year of future year. Cash flow statement is used by management of company to make effective management of the cash related issues (Brigham and Ehrhardt, 2013). It is observed that income tax expenses shown in the books of account of company are not equal to the income tax amount shown in the profit and loss account of company. It is observed that income tax charged in the profit and loss account is the tax implication on the current year profit. On the other hand, income tax shown in the cash flow statement of company is the total amount paid by company in the particular year irrespective of the fact whether it relates to present year of future year. Cash flow statement reveals each and every single detail about the cash inflow and outflow from the business. Profit and loss account is prepared with a view to identify th e true and fair view of income earned by company. Therefore, it could be concluded that both statements have their own purpose and prepared to satisfy those purpose only. The income tax expenses shown in the income statement of company is AUD $ 650 million. On the other hand, tax payment shown in the cash flow statement is AUD $ 668 million. The difference between both amounts has emerge due the reasons given above (Woolworths Company, 2017). Treatment of tax in the books of accounts of company It is observed that treatment of tax in the books of company is based on the income tax provisions and rules given under AASB 112. Interesting thing about the recording of tax The main interesting thing about the recording of tax is related to its recording treatment in different books of account. Each and every financial statement has its own purpose. For instance, payment of tax shown in the cash flow statement, irrespective of the fact whether it relates to present year of future year, profit and loss account shows the tax charged on the profit of company. Difficulty to understand the recording of tax It is observed that the main difficulty to record the tax amount is arise when there is differences between domestic and international taxation rules. It becomes cumbersome for the stakeholders to understand which entry has been recorded by following certain taxation rules and regulation. Surprising thing about the recording of tax It is evaluated that company can shows its liabilities of its tax payment as deferred tax assets or deferred tax liabilities. However, the main surprising thing to notice in this case is related to recording of deferred tax liabilities or deferred tax assets in the books of account of company. A company can never have deferred tax liabilities or deferred tax assets in the books of account of company both at the same time (Feldstein, 2009). New Insight about the recording of taxes It is understood that in order to comply with the international taxation rules and domestic taxation rules, company needs to establish harmonization in its recording of tax amount in the books of account of company by following AASB 112 (Garrett, Hoitash and Prawitt, 2014). Conclusion After evaluating the above discussion, it could be inferred that company needs to establish harmonization in its domestic and international accounting standards with a view to formulate effective financial statements. References Avi-Yonah, R.S., 2007.International tax as international law: an analysis of the international tax regime. Cambridge University Press. Brigham, E.F. and Ehrhardt, M.C., 2013.Financial management: Theory practice. Cengage Learning. De Broe, L., 2008.International Tax Planning and Prevention of Abuse: A Study Under Domestic Tax Law, Tax Treaties, and EC Law in Relation to Conduit and Base Companies(Vol. 13). Ibfd De Broe, L., 2008.International Tax Planning and Prevention of Abuse: A Study Under Domestic Tax Law, Tax Treaties, and EC Law in Relation to Conduit and Base Companies(Vol. 13). Ibfd. Feldstein, M., 2009. Tax avoidance and the deadweight loss of the income tax.The Review of Economics and Statistics,81(4), pp.674-680. Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality.Journal of Accounting Research,52(5), pp.1087-1125. Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers view.Procedia-Social and Behavioral Sciences,109, pp.1069-1075. Woolworths Company, 2017, annual report, Retrieved on 27st January, 2017 from https://www.woolworthsgroup.com.au/page/investors/our-performance/reports/Reports Yue, P. E. N. G. (2016). Domestic Application of Taxation Treaty: Study on Article 58 of the Enterprise Income Tax Law.Northern Legal Science,6, 014