Fair Value and Corporate Taxation: Out through the Door, Back through the Window?

Martins António (), Sá Cristina () and Taborda Daniel ()
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Martins António: School of Economics, University of Coimbra, CEBER, Coimbra 3004-512, Portugal
Sá Cristina: School of Technology and Management, Polytechnic Institute of Leiria, CARME, 2400-822, Leiria, Portugal
Taborda Daniel: Economics, Universidade de Coimbra Faculdade de Economia, Av Dias da Silva 165, Coimbra 3004-512, Portugal

Accounting, Economics, and Law: A Convivium, 2023, vol. 13, issue 4, 479-499

Abstract: The progressive harmonization of corporate financial information, based on the International Financial Reporting Standards, has moved fair value accounting (FVA) to the forefront of a debate that straddles accounting and corporate tax. Given the subjectivism that FVA may exhibit, especially when mark to market is not available and mark to model is used as in level 3 FVA, tax legislators have strongly restricted its impact on the corporate tax base. This paper argues that while the Portuguese corporate tax legislators explicitly followed this worldwide trend of restricting the tax impact of fair value to certain circumstances when market prices are observable (level 1 FVA), the corporate tax code has, nonetheless, several important avenues through which FVA influences taxable income determination. The main purpose of this paper is to present and discuss some important ways through which FVA may influence taxable income determination in Portugal, such as goodwill, impairment charges, transfer pricing, capital gains and exit taxation. Thus, the question emerges: is FVA returning through the window to impact the corporate tax base? Considering the global trends in public finance, and the need for present and future tax revenues, we believe this is an important topic to be addressed.

Keywords: fair-value accounting; Portuguese corporate taxation; fair value hierarchy; subjectivism in financial information (search for similar items in EconPapers)
JEL-codes: H2 M4 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/ael-2021-0046

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