Uncertain tax positions and benefits of tax reconciliation: international experience

Abstract

The purpose of the study is to analyse the experience of the United States of America and Great Britain in terms of regulation of requirements for the preparation of a report on uncertain tax positions (hereinafter referred to as UTP report) as a tool to improve the efficiency of tax administration. The objectives are the comparative characterisation of individual requirements imposed by the American and British tax authorities to the provision of the report as well as determination of the benefits of tax reconciliation on the UTP. The work is theoretical, general scientific methods are used: dialectical method of scientific cognition, method of collecting theoretical and regulatory information, analysis, comparison, synthesis. We have characterised the key features of the UTP report in the American and British, distinguished features between the requirements of tax regulators. It is established that the UTP report is a means of communication between business and tax authority on issues of controversial areas of tax legislation. In the UTP report organisations disclose information about registered tax reserves (unrecognised tax benefits), which show potential indebtedness to the state if a tax position is challenged in favour of the budget. We demonstrate the benefits accrued to companies and tax authority as a result of the tax reconciliation of the UTP. In conclusion, initially, they were regulated by American accounting standards, but the tax authority, to improve the efficiency of the tax administration and reduce the costs of tax audit, obliged businesses to disclose the relevant information in a specialised report. In turn, companies in case of proper disclosure of the information may be exempted from penalties. Due to the fact that the UTP report procedure is recent, many economic, legal, and accounting aspects remain unstudied and are areas for future research.