The theory of deferred taxation: Evidence of its applicability and conceptual framework

Abstract

The paper attempts to disclose the conceptual foundations of the theory of deferred taxation, based on the provisions of the concepts of temporary and term (temporal) differences secured by modern accounting standards. The study summarizes the key aspects of the corporate tax distribution procedure (intra-period and inter-period) and tax effects (pass-through, partial, and full). The methods of accounting for deferred taxes: liability, deferral, and net taxation are characterized. The financial nature of deferred taxes is described, including the legal side in terms of their correlation with the categories of assets and liabilities. The criteria for recognition of tax effects depending on the concept of deferred tax accounting are given. The applicability of deferred taxation theory is substantiated using formalization techniques: the derived equations explain the importance of deferred tax accounting, which corrects the financial assessment of assets and liabilities in the direction of the accurate reflection of economic reality. Other unresolved controversial issues in the field of research are considered, and the author’s position in determining the directions of their solutions is offered. The results of the work are useful for further theoretical elaboration, the aim of which is the development of accounting methodology, including the issue of tax effects accounting. Many provisions can be used in the preparation of national accounting standards. Perspective directions of research are the disclosure of economic content of deferred taxes, the conduct of empirical tests with the specified object of accounting observation in order to identify statistical dependencies, which can be used in practical activities, for example, to assess the tax behavior of companies.