With respect to the financial accounting net income or loss of a constituent entity the proposed Directive arranges the following in Article 14:
1. The qualifying income or loss of each constituent entity shall be computed by making the adjustments set out in Articles 15, 16, 17 and 18 to the financial accounting net income or loss of the constituent entity for the fiscal year before any consolidation adjustments for intra-group transactions, as determined under the accounting standard used in the preparation of the consolidated financial statements of the ultimate parent entity.
2. Where it is not reasonably feasible to determine the financial accounting net income or loss of a constituent entity based on the accounting standard used in the preparation of the consolidated financial statements of the ultimate parent entity, the financial accounting net income or loss of the constituent entity for the fiscal year may, by derogation from paragraph 1, be determined using another acceptable financial accounting standard or an authorised financial accounting standard provided that:
(a) the financial accounts of the constituent entity are maintained based on that other accounting standard;
(b) the information contained in the financial accounts is reliable; and
(c) long-term differences in excess of EUR 1 000 000 that arise from the application of a particular principle or standard to items of income or expense or transactions, which differs from the financial standard used in the preparation of the consolidated financial statements of the ultimate parent entity, shall be adjusted to conform to the treatment required for that itemunder the accounting standard used in the preparation of the consolidated financial statements.
An authorised financial accounting standard means, in respect of an entity, a set of generally acceptable accounting principles permitted by an authorised accounting body in the jurisdiction where that entity is located. For this purpose, authorised accounting body means the body with legal authority in a jurisdiction to prescribe, establish or accept accounting standards for financial reporting purposes.
3. Where an ultimate parent entity has not prepared its consolidated financial statements in accordance with an acceptable financial accounting standard referred to in Article 3, point (6), the consolidated financial statements of the ultimate parent entity shall be adjusted to prevent any material competitive distortion.Where an ultimate parent entity does not prepare consolidated financial statements, the consolidated financial statements of the ultimate parent entity shall be those that would have been prepared if the ultimate parent entity was required to prepare such consolidated financial statements in accordance with:
(a) an acceptable financial accounting standard; or
(b) another financial accounting standard provided that such consolidated financial statements are adjusted to prevent any material competitive distortion.
Where the application of a specific principle or procedure under a set of generally accepted accounting principles results in a material competitive distortion, the accounting treatment of any item or transaction subject to that principle or procedure shall be adjusted to conform to the treatment required for the item or transaction under International Financial Reporting Standards.
A material competitive distortion means, in respect of the application of a specific principle or procedure under a set of generally acceptable accounting principles, an application that results in a variation of more than 10 % of revenue or EUR 75 million as compared to the amount that would have been determined by applying the corresponding principle or procedure.
Copyright – internationaltaxplaza.info
