Deferred income tax in multinational banks: A case of Croatia, Serbia and Slovenia

Abstract

Deferred income tax is an important position in financial statements of banks. It is primarily a result of temporary differences between book and tax values of assets and liabilities. Subsidiaries of multinational banking groups that operate in Croatia, Serbia and Slovenia have to report on deferred tax in accordance with International Accounting Standard 12 - Income Taxes. This paper examined the practices related to deferred income tax in such banks. In this regard, there four banking groups were sampled (two Austrian and two Italian) that operate in three observed countries. Research results showed that net deferred tax assets/liabilities do not usually have materially significant share in total assets of banks, though there is statistically significant difference in the materiality between countries. In general, banks recognize deferred tax assets less after the Covid-19 pandemic, due to the growing uncertainty over achieving the future taxable income, though such reduction is not statistically significant. In addition, the sources of deferred income tax significantly vary between countries, though the valuation of financial assets is, in general, the most common source of deferred tax.