How to determine the value of deductible temporary differences for corporate income tax in Vietnam?

Vietnam: What does a deductible temporary difference for corporate income tax mean?

The deductible temporary difference for corporate income tax is stipulated in Section 3 of Accounting Standard No. 17, promulgated and published according to Decision 12/2005/QD-BTC. Specifically:

03. The terms in this Standard are understood as follows:

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Temporary Difference: Is the difference between the carrying amount of an asset or liability in the Balance Sheet and its tax base. Temporary differences can be:

a) Taxable temporary differences: These are temporary differences that lead to taxable income in determining taxable corporate income in the future when the carrying amounts of the related assets or liabilities are recovered or settled; or

b) Deductible temporary differences: These are temporary differences that generate amounts deductible in determining taxable corporate income in the future when the carrying amounts of the related assets or liabilities are recovered or settled.

The tax base of an asset or liability: Is the value assigned to an asset or liability for corporate income tax purposes.

Corporate income tax expense includes current income tax expense and deferred income tax expense. Corporate income tax income includes current income tax income and deferred income tax income.

Thus, the deductible temporary difference for corporate income tax comprises temporary differences that generate deductible amounts in future taxable income determination when the carrying amounts of related assets or liabilities are recovered or settled.

Vietnam: What does a deductible temporary difference for corporate income tax mean? (Image from the Internet)

When must deferred tax assets be recognized for all deductible temporary differences in corporate income tax in Vietnam?

According to Section 13 of Accounting Standard No. 17, promulgated and published according to Decision 12/2005/QD-BTC, it is stipulated as follows:

Deductible Temporary Differences

13. Deferred tax assets should be recognized for all deductible temporary differences when it is probable that taxable profits will be available in the future to use these deductible temporary differences, except for deferred tax assets arising from the initial recognition of an asset or liability from a transaction that does not affect accounting profit or taxable profit (tax loss) at the transaction time.

14. The basis for recognizing a liability is the expectation that its carrying amount will be settled in the future by the enterprise sacrificing economic benefits. When economic benefits are sacrificed, part or all of their value may be deductible from taxable profit in the period following 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. Thus, a deferred tax asset arises concerning corporate income taxes that will be recovered in the future when part of that liability is allowed to be deducted in determining taxable profit.

Deferred tax assets must be recognized for all deductible temporary differences in corporate income tax, when it is probable that taxable profits will be available in the future to utilize these deductible temporary differences,

Except for deferred tax assets arising from the initial recognition of an asset or liability from a transaction that does not affect accounting profit or taxable profit (tax loss) at the transaction time.

How to determine the value of deductible temporary differences for corporate income tax in Vietnam?

According to Clause 6.3 of Subsection 6 Part A Section 1 Circular 20/2006/TT-BTC it is stipulated as follows:

I - GUIDELINES FOR ACCOUNTING STANDARD “CORPORATE INCOME TAX”

A - General Provisions

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6 – Determination of “Temporary Differences”

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6.3 – Determination of “Deductible Temporary Differences”:

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(2) Determination of the value of deductible temporary differences:

+ For assets: A deductible temporary difference is the difference where the carrying amount of the asset is less than its tax base.

+ For liabilities: A deductible temporary difference is the difference where the carrying amount of the liability exceeds its tax base.

(3) Some scenarios leading to deductible temporary differences:

+ Deductible temporary differences arising from revenue recognition in future years while the income tax is accounted for in the current year.

Example: In cases where a company receives advance payments for leasing real estate or infrastructure over many years. This upfront revenue is recognized in the Income Statement spread across the leasing period, but the company pays corporate income tax on the entire advance payment in the year it is received.

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Therefore, according to the regulation above, the value of deductible temporary differences for corporate income tax is determined as follows:

[1] For assets: A deductible temporary difference is the difference where the carrying amount of the asset is less than its tax base.

[2] For liabilities: A deductible temporary difference is the difference where the carrying amount of the liability exceeds its tax base.