Chapter 8: Current & Deferred Taxes

Question 1

What are income taxes?

Answer 1

Income taxes are levied by governments on taxable profit earned by individuals, commercials and entities.

Question 2

What are the most important income taxes in Germany?

Answer 2

-Trade taxes;
-Corporate taxes;
-Income taxes;
-Solidarity surcharge;
-Church taxes.

Question 3

What is EBT?

Answer 3

EBT stands for Earnings Before Taxes. In other words, profit or loss for a period before deducting tax expenses.

Question 4

What is net profit?

Answer 4

Profit or loss within any given period AFTER deducting tax expenses.

Question 5

What is taxable profit?

Answer 5

Taxable profit is the amount deducted for example from a company´s Earnings Before Taxes (EBT) that must be paid to the taxation authorities.

Question 6

What are permanent differences?

Answer 6

Permanent differences arise when the book values of assets and liabilities in tax BS permanently differ from the book values in the IFRS or local GAAP´s BS.

ex1: Particular hosting expenses or donations ARE NOT deductible from tax profit according to German´s income tax rules.

ex2: Book value of land differs permanently from the book value according to IFRS.

Question 7

What are temporary differences?

Answer 7

Temporary differences arise when book values of assets and liabilities in tax BS temporarily differ from the book values in IFRS or local GAAP´s BS.

ex: For tax purposes, different depreciation methods may be used.

Question 8

What are tax liabilities/assets (IFRS BS)?

Answer 8

Amount of income taxes payable/recoverable in respect of the taxable profit/loss for a given period.