Since 2007, the legislature has offered micro and small legal entities the option of preparing financial statements on the basis of fiscal valuation principles. Section 2:396 of the Dutch Civil Code provides in paragraph 6 that the principles for determining taxable profit (referred to in Chapter II of the Corporation Tax Act) can also be considered for the valuation of assets and liabilities and for determining the result. The Council for Annual Reporting has also issued a handbook aimed at assisting the management of micro and small legal entities in preparing their financial statements based on tax principles.
Insight
When applying tax valuation principles, the differences between tax and commercial valuation and profit determination disappear. In practice, we see that the use of tax valuation principles can lead to a distorted financial picture, because the tax valuation principles can lead to the presentation of lower equity. This can be a disadvantage when presenting the company's image to the users of the financial statements.
For example, certain assets may have to be valued according to a different method for tax purposes (for example, a building, the value of which is partly determined by the WOZ value), profits for tax purposes may be realized at a later time, or certain provisions are not accepted for tax purposes. Such differences also have an effect on the tax burden, which will be recognized in the business (commercial) financial statements as deferred taxes. As a result, the commercial annual accounts do provide a better insight into the actual capital and results of your company. In addition, key figures such as solvency may read differently when applying tax principles, namely often lower, which in turn can be disadvantageous for obtaining external financing.
The advantage of applying tax valuation principles that the legislator wanted to achieve is to provide an administrative burden reduction. This is because financial statements based on tax valuation principles can be used directly for tax returns.
Note
The notes in the financial statements must state the choice of either commercial or tax principles, so that the user of the financial statements is able to interpret the figures properly. It must also be stated which important (material) differences exist between the commercial and fiscal valuation. The extent of these differences need not be explained.
Obligation
Choosing to prepare financial statements on tax accounting principles is not an obligation. Micro and small legal entities may still continue to prepare financial statements on commercial principles.
It is important to note that the choice for the application of fiscal valuation principles leads to the valuation of all items in the annual accounts on fiscal principles. Application to only a few items (cherry picking) is not permitted under Article 2:396(6) of the Dutch Civil Code.
Finally
For any questions about what options are available for your financial statements, please contact us through your relationship manager, by phone at 040 - 2 504 504 or by using the contact form below.