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Relationship between corporate income tax reporting & annual reports in EU and Croatia

In every country accounting system is related to tax legislation. Taxes are public revenues with a purpose to finance the state and public needs. There are certain information needed so taxes could be collected. This information is provided by individuals and legal entities by bookkeeping and generally by giving certain information to Tax Department (administrative unit within Ministry of Finance). Therefore, we are going to write about accounting legislations which are obligatory for taxpayers keeping in mind that they should present fair and true information in their financial records and financial statements and also about accountancy as a source of information for determining tax obligations and tax basis. Each company’s management can prepare financial statements for their own use in different ways which are the most appropriate for internal needs of management. When the financial statements are issued for others, like shareholders, employees, creditors and general public they should be prepared in accordance with general accepted accounting standards (e.g.: International Financial Reporting Standards) and when the financial statements are prepared for tax purposes they should be in accordance with tax legislation. In last few years European Union fiscal policy is very much associated with development of internal market. European Union goals and efforts are clear, harmonization or even standardization of member countries tax systems. However, it has become clear that it is hard to achieve that, especially overall, but as long as key principals of internal market (free movement of goods, people, services and capital) are not threatened, attempts will go on. When we talk about specifics of relationship between accountancy and tax legislation of certain Member Countries of the EU, it mainly refers to differences in financial reporting for accounting and for tax purposes. Those differences are mainly manifested in corporate income tax, both in Croatia and in Member Countries of the EU. The main hypothesis in this paper is to prove that tax legislation dominate over accounting legislation, especially in SME’s. Croatian method of financial reporting belongs to a group along with Germany and France, that is, countries with continental approach, which give emphasis only to existence of dual accounting, but don’t apply it completely in practice. The mainstream and trend in EU is that all countries are leaving (especially transition countries) the concept of Accounting Law and preparing for SME's National Accounting Standards. Croatian accounting regulations is still based on Accounting Law (by the Law everybody are obligated on IFRS) and it is very difficult for SME's to apply all the IFRS. So, Croatian SME's are mostly using Corporate income tax Law and VAT Law because it is simpler and then they are not obligated to prepare two sets1 of financial statements but only one which can be used in both purposes : state purpose and owner purpose. Respectively, it would be better to say that tax legislation has a strong fingerprint over accounting legislation.

Croatia, EU, Corporate Income Tax, Financial Reporting

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