Tax note and effective tax rate reconciliation

Context

The Ardelys group (fictitious entities) produces laboratory equipment. The parent, Ardelys SA, is taxed at 25%; its subsidiaries are based in Varnessa (a fictitious low-tax country) and in Escalvia (a fictitious country). You are preparing the consolidated IFRS tax closing for the year ended 31 December 20X6, financial statements authorised on 2 March 20X7. The ordinary current tax of each entity and the deferred tax have been recorded; the uncertain tax treatments, the Pillar Two top-up tax and the tax note remain to be dealt with. The tax amounts, the probabilities and the Pillar Two calculations are case data.

Assignment

Tax note and reconciliation workpaper (Ardelys group, 20X6).

Purpose of the workpaper

Reconcile the tax expense with its components, compute the expected tax at the applicable rate and reconcile it with the reported tax expense (permanent differences, rate differences, unrecognised losses, prior period adjustments), prepare the roll-forward of net deferred tax, assess the offset presentation and the Pillar Two disclosures, then draft the tax note.

Questions of the file covered by this workpaper

• How should the Varnessan Pillar Two tax and the Escalvian rules be treated?
• Calculate the current tax of the year and the total tax expense.
• Calculate the expected tax and the effects of permanent differences.
• Prepare the reconciliation between expected tax and tax expense.
• Prepare the movement schedule of the net deferred tax.
• Write the conclusion and the points of the tax note, and answer the chief financial officer.

• MemoClosing memo of the tax departmentOpen
• ScheduleAdvisers' summary on transfer pricingOpen
• MemoMemo from the tax directorOpen
• DocumentNotice of audit closureOpen
• MemoPillar Two memoOpen
• ScheduleReconciliation dataOpen
• ScheduleSchedule of deferred tax balancesOpen
• ExtractExtract from the non-financial reportOpen