Development of International Tax Framework - Essay Example

This way, a universally applicable tax framework will serve to eliminate tax avoidance issues.

Another argument for this proposal is based on the premise that; the establishment of such a global universally applicable tax framework will create transparent and comparable information in financial statements (Gassen & Sellhorn, 2006:n.p.). This is because, when all countries and consequent all organizations are applying a globally universal tax framework, they will produce similar and comparable financial statements in all respects, which will then enhance transparency, and consequently help end tax avoidance issues (Ault & Arnold, 2010:47). The application of a universal tax framework globally will bring a convergence of the International Financial Standards and the accepted National Accounting Standards in different countries worldwide (Ball, R., Kothari, & Robin, 2000:44). The convergence of the two set principles will seal the possible loopholes applied for tax avoidance.

However, the argument against the proposal to have one international tax framework to eliminate the tax avoidance issues is that:

First, the regulatory frameworks of different countries concerning taxation are very different, with some taxable aspects of the incomes and revenues within some countries being exempted from tax in other countries (Hope, 2003:236). This means that establishing a universal taxation system will eventually create inherently flawed tax accounts, which are not suitable for inspection by the authorities (Nobes, 2002:72). While financial statements are made for the stakeholders of any organization, tax accounts are purely prepared for authority inspection and in fulfillment of the necessary tax obligations (Barth & Lang, 2008:469). Therefore, the establishment of one international tax framework will eventually create a conflict between financial accounting and tax accounting.

Another argument against the proposal is that; a universal global tax framework will prove to be a challenge because compared to the flaws of hidden risks in IFRS; the risks of such a global tax cooperation framework might not be easy to establish, since it might develop similar flaws (McGee & Preobragenskaya, 2006:27). This means that; the one universal tax framework proposed like the IFRS will not hold, because it is not suitable for different inspection purposes, due to the highly hidden risks.

Therefore, the probability of one international tax framework being accepted by different countries is low. This is because; as opposed to financial reporting standards which serve generally similar purposes for organizational stakeholders, a tax accounting framework only serves the purpose of meeting the tax regulations as established by regulators in different countries (Ashbaugh & Pincus, 2001:417). This implies that such objectives can never be converged to form a universal regulatory objective. Consequently, different countries cannot have a single tax framework suitable for them all.