Accounting profits are calculated using International Financial Reporting Standards (IFRS) to show a company’s financial performance to investors. Taxable profits are determined using national tax codes to calculate the company’s legal tax liability. Because these systems have different objectives, corporate tax accountants must adjust accounting net profit by adding back disallowable expenses and subtracting non-taxable incomes.

The foundational rule governing corporate deductions states that an expense is only allowable if it was incurred wholly and exclusively in the production of business income. Expenses that are personal, capital-intensive, or unrelated to core business operations are legally disallowable.

[ Net Profit as per Financial Statements ]
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     Add: Disallowable Expenses (Depreciation, fines, private expenses)
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     Less: Non-Taxable Incomes & Incentives (Exempt dividends, capital gains)
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[ Net Taxable Corporate Profit ] ===> Apply statutory corporate tax rate