Question:
Our company is headquartered in Ho Chi Minh City, and we have a dependent branch in Hanoi to sell goods (the Hanoi branch has its own seal, bank account, and issues invoices separately when selling goods). When the Ho Chi Minh City head office delivers goods to the Hanoi branch, we use value-added tax invoices, record sales revenue, and declare output VAT for invoices issued to the Hanoi branch.
The Hanoi branch, upon receiving invoices from the Ho Chi Minh City head office, records inventory input. When selling to customers, the Hanoi branch issues invoices, and at the end of the accounting period, there is still inventory remaining that was received from the Ho Chi Minh City head office. Therefore, there is unrealized profit in the value of inventory at the end of the period.
Following the guidance in Example 8, Appendix 3 attached to Circular No. 202/2014/TT-BTC dated December 22, 2014, and Article 16 of Circular No. 202/2014/TT-BTC, which provides instructions on adjusting profit not yet realized in the value of inventory, enterprises should make the necessary adjustments (Journal entries during period T: Debit revenue/Credit cost of goods sold/Credit inventory, period T+1 – create a reverse journal entry: Debit inventory/Credit undistributed post-tax profit).
So, when calculating corporate income tax (CIT) (according to the regulation that the Ho Chi Minh City head office is responsible for centrally declaring CIT at the head office and also for any additional amounts arising at the subsidiary), should the basis for determining the CIT payable by the Ho Chi Minh City head office be based on the figures before or after adjusting for profit not yet realized in the value of inventory?
Answer:
Based on Article 3 of Circular No. 96/2015/TT-BTC dated June 22, 2015, issued by the Ministry of Finance, which provides guidance on corporate income tax (CIT), it specifies the timing of determining revenue for CIT calculation. In principle, the timing of determining revenue for CIT calculation for goods is the moment of transferring ownership or the right to use the goods to the buyer. In the case where the company delivers goods to a dependent branch in a province or city different from the company’s head office, when the branch sells the goods to customers, the company should account for revenue and calculate CIT according to the regulations at that point in time.
