Provisions on Recording Deferred Corporate Income Tax Arising from Business Combination Transactions

Regulations on recognizing deferred corporate income tax arising from business consolidation transactions (illustrative image)

Under Article 18 Circular 202/2014/TT-BTC, which regulates the recognition of deferred corporate income tax arising from business consolidation transactions, when the book value of assets and liabilities on the separate financial statements of the subsidiary differs from their fair value, the parent company must recognize deferred income tax when preparing consolidated financial statements. Specifically:

- In the case where the fair value of identifiable net assets of the subsidiary is higher than the book value, when eliminating the parent company’s investment in the subsidiary, the following accounting entries must be made to recognize deferred tax payable:

- Debit the items under owners' equity (according to book value);- Debit Goodwill (if arising);- Debit Net assets (if fair value exceeds book value);- Credit Other income (in the case of profit from a bargain purchase);- Credit Investment in subsidiary;- Credit Non-controlling interests (the ownership proportion in the difference where the fair value of identifiable net assets exceeds the book value);- Credit Deferred income tax payable.

- In the case where the fair value of identifiable net assets of the subsidiary is lower than the book value, when eliminating the parent company’s investment in the subsidiary, the following accounting entries must be made to recognize deferred tax assets:

- Debit the items under owners' equity (according to book value);- Debit Goodwill (if arising);- Debit Non-controlling interests (the ownership proportion in the difference where the fair value of identifiable net assets is lower than the book value);- Debit Deferred income tax assets;- Credit Net assets (fair value lower than book value);- Credit Other income (in the case of profit from a bargain purchase);- Credit Investment in subsidiary.

**Note:**The parent company must not recognize deferred tax payable for goodwill arising from a business acquisition.

For details, see Circular 202/2014/TT-BTC, which takes effect from February 27, 2015.

Ty Na

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