A tax reconciliation is a disclosure in a company's financial statements that explains why the income tax expense for the period differs from accounting profit multiplied by the applicable tax rate. It is required by IAS 12, which allows the explanation to be given either in amounts or as a comparison of rates, and by equivalent rules in other accounting frameworks. It is sometimes called the effective tax rate reconciliation.
The note starts with the expected tax charge and lists the items that move it to the reported tax provision: income that is not taxable, expenses that are not deductible, profits earned in countries with different rates, tax losses used or not recognised, changes in tax rates and adjustments for earlier years. Analysts read it to judge how sustainable a company's tax rate is. The term is also used for routine checks that tax balances in the general ledger agree with returns and payments.