This Standard requires an enterprise to account for the tax consequences of transactions and other events in the same way that it accounts for the transactions and other events themselves. Thus, for transactions and other events recognized in the income statement, any related tax effects are also recognized in the income statement. For transactions and other events recognized directly in equity, any related tax effects are also recognized directly in equity. This Standard also deals with the recognition of deferred tax assets arising from unused tax losses or unused tax credits and the presentation of income taxes in the financial statements and the disclosure of information relating to income taxes.
Income taxes include all income taxes which are based on taxable profits including profits generated from production and trading activities in other countries that the Socialist Republic of Vietnam has not signed any double tax relief agreement. Income taxes also include other related taxes, such as withholding taxes on foreign individuals or organizations with no permanent standing in Vietnam when they receives dividends or distribution from their partnership, associates, joint venture or subsidiary; or making a payment for services provided by foreign contractors in accordance with regulations of the prevailing Law on corporate income taxes.
Accounting profit: is net profit or loss for a period before deducting tax expense, determined in accordance with the rules of accounting standards and accounting system. Taxable profit : is the taxable profit for a period, determined in accordance with the rules of the current Law on Income taxes, upon which income taxes are payable or recoverable. Income tax expense tax income : is the aggregate amount of current income tax expense income and deferred income tax expense income included in the determination of profit or loss for the period.
Current income tax :is the amount of income taxes payable or recoverable in respect of the current year taxable profit and the current tax rates.
Deferred income tax liabilities :are the amounts of income taxes payable in future periods in respect of taxable temporary differences in the current year. Deferred income tax assets : are the amounts of income taxes recoverable in future periods in respect of:. Temporary differences: are differences between the carrying amount of an asset or liability in the balance sheet and its tax base.
Temporary differences may be either:. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. Income tax expense comprises current tax expense and deferred tax expense. Tax income comprises current tax income and deferred tax income. The tax base of an asset is the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an enterprise when it recovers the carrying amount of the asset.
If those economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount. Revenue generated by using the asset is taxable, any gain on disposal of the machine will be taxable and any loss on disposal will be deductible for tax purposes. The tax base of the asset is The related revenue has already been included in taxable profit tax loss.
The tax base of the trade receivables is The dividends are not taxable. In substance, the entire carrying amount of the asset is deductible against the economic benefits.
Consequently, the tax base of the dividends receivable is In the above example, there is no taxable temporary difference. Under both cases, there is no deferred tax liability. The repayment of the loan will have no tax consequences. The tax base of the loan is The tax base of a liability is its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability in future periods.
In the case of revenue which is received in advance, the tax base of the resulting liability is its carrying amount, less any amount of the revenue that will not be taxable in future periods. The related expense will be deducted for tax purposes on a cash basis.
The tax base of the accrued expenses is nil. The related interest revenue was taxes on a cash basis. The tax base of the interest received in advance is nil. The accrued expenses have already been deducted for tax purposes in the current year.
The tax base of the accrued expenses is Fines are not deductible for tax purposes. The tax base of the accrued fines is In the above example, there is no deductible temporary difference.
Under both cases, there is no deferred tax asset. Some items have a tax base but are not recognized as assets and liabilities in the balance sheet. For example, cost of supplies and tools are recognized as an expense in determining accounting profit in the period in which they are incurred but will only be permitted as a deduction in determining taxable profit tax loss until a later period. The difference between the tax base of the cost of supplies and tools, being the amount the taxation authorities will permit as a deduction in future periods, and the carrying amount of nil is a deductible temporary difference that results in a deferred tax asset.
Where the tax base of an asset or liability is not immediately apparent, it is helpful to consider the fundamental principle upon which this Standard is based: that an enterprise should, with certain limited exceptions, recognize a deferred tax liability asset whenever recovery or settlement of the carrying amount of an asset or liability would make future tax payments larger smaller than income tax payable in the current year if such recovery or settlement were to have no tax consequences.
Current tax for current and prior periods should, to the extent unpaid, be recognized as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess should be recognized as an asset.
A deferred tax liability should be recognized for all taxable temporary differences, unless the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting profit nor taxable profit tax loss. The recognition base of an asset is the carrying amount of that asset that will be recovered in the form of economic benefits that flow to the enterprise in future periods.
When the carrying amount of the asset exceeds its tax base, the amount of taxable economic benefits will exceed the amount that will be allowed as a deduction for tax purposes. This difference is a taxable temporary difference and the obligation to pay the resulting income taxes in future periods is a deferred tax liability.
As the enterprise recovers the carrying amount of the asset, the taxable temporary difference will reserve and the enterprise will have taxable profit. This makes it probable that economic benefits will be decreased due to tax payments. Therefore, this Standard requires the recognition of all deferred tax liabilities, except in certain circumstances described in paragraph A fixed asset which cost has a carrying amount of The tax base of the asset is 60 cost of less cumulative tax depreciation of To recover the carrying amount of , the enterprise must earn taxable income of , but will only be able to deduct tax depreciation of Consequently, the enterprise will pay income taxes of The difference between the carrying amount of and the tax base of 60 is a taxable temporary difference of Therefore, the enterprise recognizes a deferred tax liability of Some temporary differences arise when income or expense is included in accounting profit in one period but is included in taxable profit in a different period.
Such temporary differences are often described as timing differences. These temporary differences are taxable temporary differences and will result in deferred tax liabilities. Depreciation used in determining taxable profit tax loss may differ from that used in determining accounting profit. The temporary difference is the difference between the carrying amount of the asset and its tax base which is the original cost of the asset less all deductions in respect of that asset permitted by the tax law in determining taxable profit of the current and prior periods.
A taxable temporary difference arises, and results in a deferred tax liability, when tax depreciation is more accelerated than accounting depreciation if tax depreciation is less rapid than accounting depreciation, a deductible temporary difference arises, and results in a deferred tax asset. A temporary difference may arise on initial recognition of an asset or liability, for example if part or all of the cost of an asset will not be deductible for tax purposes.
The method of accounting for such a temporary difference depends on the nature of the transaction which led to the initial recognition of the asset. If the transaction affects either accounting profit or taxable profit, an enterprise recognizes any deferred tax liability or asset and recognizes the resulting deferred tax expense or income in the income statement see paragraph It is inherent in the recognition of a liability that the carrying amount will be settled in future periods through an outflow from the enterprise of resources embodying economic benefits.
When resources flow from the enterprise, part or all of their amounts may be deductible in determining taxable profit of a period later than the period in which the liability is recognized. In such cases, a temporary difference exists between the carrying amount of the liability and its tax base. Accordingly, a deferred tax asset arises in respect of the income taxes that will be recoverable in the future periods when that part of the liability is allowed as a deduction in determining taxable profit.
Similarly, if the carrying amount of an asset is less than its tax base, the difference gives rise to a deferred tax asset in respect of the income taxes that will be recoverable in future periods. An enterprise recognizes a liability of for accrued product warranty costs.
For tax purposes, the product warranty costs will not be deductible until the enterprise pays claims. The impact of these amendments is amplified by the potential interaction with recently revised financial accounting standards applicable to revenue from customer contracts.
First, Sec. Second, revised Sec. Each of these terms is taken directly from the new financial accounting standards, underscoring the new relationship between tax and books.
Accrual - method taxpayers are well - acquainted with the general requirement to recognize income in the tax year in which all the events have occurred that fix the right to receive an item of income and the amount of that income can be determined with reasonable accuracy. The " all - events test" has been a bedrock of federal tax accounting for decades. An equally well - established principle is that financial accounting and tax accounting have fundamentally different purposes, and, as a result, how a taxpayer treats an item of income or expense for financial accounting purposes generally does not determine how that item may be treated for federal tax purposes.
Although many taxpayers try to align their financial and tax accounting methods as closely as possible to avoid book - tax differences, the core differences between financial and tax accounting have not always permitted those two methods to align. The TCJA fundamentally alters the relationship between financial and tax accounting.
Under the new rule, an accrual - method taxpayer may not treat the all - events test as being met for any item of gross income or portion thereof any later than when that item is taken into account as revenue in either an applicable financial statement AFS or another financial statement that Treasury and the IRS identify as applying for this purpose.
This conformity requirement does not apply to taxpayers that do not have an AFS, or to any item of gross income in connection with a mortgage servicing contract.
GAAP for certain purposes such as an SEC Form 10 - K , or certain audited statements that the taxpayer uses for credit purposes, reports to shareholders, and specific other uses ; 2 if the taxpayer has no AFS under 1 , a financial statement prepared using International Financial Reporting Standards IFRS and filed with certain foreign government entities; or 3 if the taxpayer has no AFS under either 1 or 2 , a financial statement filed by the taxpayer with any other regulatory or governmental body specified by the IRS and Treasury.
Importantly, this new conformity requirement does not apply to income items for which the taxpayer is using another "special method of accounting" provided in the Code, such as the installment method of Sec.
It appears, however, that this new statutory requirement will invalidate nonstatutory accounting methods that potentially conflict with it, such as the deferral rules for certain sales of goods heretofore permitted by Regs. Taxpayers may continue to use the more limited one - year deferral permitted by Rev.
Although the statutory language of Sec. As such, companies currently using the deferral method described in the revenue procedure should not be required to request IRS consent to continue doing so. A detailed description of the new financial accounting standard is beyond the scope of this discussion. This provision was intended to codify the one-year deferral method previously available to taxpayers, but also eliminated the more extended deferral methods previously utilized by certain taxpayers.
Taxpayers that previously deferred revenue for more than one tax year will likely need to recognize such revenue sooner under this provision. The proposed regulations define an AFS and include a hierarchy, which requires a taxpayer to use the financial statement with the highest priority. This means that taxpayers with reviewed or compiled financial statements will not typically be subject to the revenue acceleration provision. Taxpayers should consider whether their financial statements rise to the level of AFS for this provision.
Further, taxpayers that may have an AFS in one year but not in another should consider how that will impact taxable income as they move in and out of the revenue acceleration provision. No reduction for cost of goods sold: The proposed regulations do not include an offsetting acceleration of costs such as cost of goods sold, rebates, allowances, etc.
GAAP has a matching concept whereby costs are generally recognized when the related revenue is recognized. Even taxpayers with inventoriable goods may be required to recognize revenue in an earlier tax year and continue to defer cost of goods sold to the year of delivery.
This is true even for taxpayers who may have been permitted to accelerate costs under prior law. This remains a contentious issue, and taxpayers are seeking relief due to the unfavorable distortion of taxable income that can be caused by this provision.
The Treasury Department and IRS are currently considering whether any exceptions to this rule may be appropriate.
Sale versus lease: The revenue acceleration provision cannot change the character of a transaction for income tax purposes. For example, if a transaction is treated as a sale for financial statement purposes but a lease for tax purposes, this provision will not require the acceleration of all lease revenue into the year that the sale of property is recorded in the financial statements.
Contingent revenue: The proposed regulations also provide that contingent revenue based on a future event will not be accelerated until the contingency is resolved. Under ASC , taxpayers with variable or contingent consideration may recognize portions of that revenue for GAAP purposes before the contingency lapses depending on the likelihood of the future conditions being met.
However, taxpayers who recognize contingent revenue for financial statement purposes before the contingency is met may be able to continue to defer such revenue for tax purposes. This includes taxpayers using the percentage of completion method, cash method, and mark-to-market method, among others. Mortgage servicing rights are also not subject to the revenue acceleration provision.
The proposed regulations provide that an AFS has the same meaning as provided under the revenue acceleration provision discussed above. These taxpayers may defer advance payments to the extent the payment is not earned in the year of receipt.
If a taxpayer is unable to determine when a payment is earned, the proposed regulations provide that a taxpayer may determine the amount earned on a statistical basis, straight-line ratable basis, or any other basis that provides for a clear reflection of income. This is a welcome rule as these taxpayers were permitted to follow a similar rule prior to the TCJA. No reduction for cost of goods sold: Similar to the revenue acceleration provisions, the proposed advance payment regulations do not include an offsetting acceleration of costs, even when revenue is accelerated.
This is consistent with the historical treatment of advance payments for many taxpayers, including service providers. However, under historical advance payment guidance, a taxpayer selling goods may have been able to limit the income accelerated to amounts received in excess of estimated costs. This is no longer permitted so sellers of inventoriable goods who receive long-term deferred revenue will now incur a tax burden based on the revenue received in advance rather than based on profit and should consider how this will impact their cash flow but see below for one exception that may apply to some of these taxpayers.
Limited provision for greater than one-year deferral: The regulations may also provide relief for certain taxpayers who receive advance payments at least two tax years before a contracted delivery date.
0コメント