Which tax rate should be used in interim financial reporting?

In interim financial reporting, the best practice is to use the best estimate of the effective tax rate for the full fiscal year. This is important because interim financial statements are typically prepared using the estimate of the rate that the company expects to apply to its taxable income for the entire year. This approach provides a more accurate representation of the company's financial position and performance, as it reflects expected trends and changes in tax rates or taxable income over the full fiscal year.

This methodology aligns with the principle of the effective tax rate, which accounts for the variability of tax rates on different types of income and allows for a more nuanced consideration of tax implications based on the company's overall operations and any tax planning strategies that are being implemented. Using the effective tax rate ensures that the interim results aren't misleading and gives investors and analysts a clearer picture of expected tax obligations.