Corporate Income Tax Finalization Dossier: 4 Common Triggers of Tax Reassessment & How Enterprises Should Respond

Finalizing Corporate Income Tax (CIT) is a mandatory annual procedure for businesses. However, many enterprises—despite having submitted financial statements and tax declarations—are still subject to tax reassessment and penalties after audits, largely due to unprepared documentation or a lack of awareness of potential risks.

Below are four typical scenarios that often lead to tax reassessment, along with guidance on how enterprises can provide justification and mitigate risks effectively.

1. Non-Deductible Expenses Under Circular 78/2021/TT-BTC

Common issues:
Businesses record expenses that fail to meet the deductibility criteria, resulting in their exclusion when calculating taxable CIT. Examples include:

• Client entertainment or gift expenses without valid invoices.

• Outsourced services lacking contracts or proof of delivery.

• Salary and bonus costs not defined in labor agreements or without payroll records.

Solutions:

• Ensure all supporting documents are in place: invoices, contracts, payment vouchers, acceptance reports.

• Maintain clear internal policies on salaries, bonuses, and employee benefits.

• For specialized services (consulting, advertising, marketing), include outcome documentation, images, design files, and completion reports.

Note: Tax authorities prioritize the substance over the form of a transaction. A legitimate-looking invoice without real, provable value may still be rejected.

2. Incorrect Revenue Recognition Period – Leading to Tax Obligations Discrepancy

Common issues:

• Recognizing revenue later than the actual delivery of goods/services.

• Consolidating revenue in a later period when it actually pertains to an earlier one.

• This causes profit shifts between years, affecting tax obligations and may result in investigation if discrepancies are significant.

Solutions:

• Comply with Article 3 of Circular 78/2021/TT-BTC: Revenue must be recognized when ownership is transferred or services are fully rendered.

• Use contracts, delivery notes, warehouse releases, and invoices to determine accurate recognition timing.

• For multi-period revenues (e.g., consulting or leasing services), allocate appropriately and maintain a time-based reconciliation table.

3. Related Party Transactions Without Transfer Pricing Documentation

Common issues:
Businesses with transactions involving related parties (parent company, subsidiaries, controlling shareholders) fail to prepare transfer pricing documentation per Decree 132/2020/ND-CP.

Consequences:

• Tax authorities may impose deemed pricing, possibly leading to tax reassessment due to suspected profit shifting.

• Administrative penalties and categorization as a high-risk taxpayer.

Solutions:

• Determine early whether your business qualifies as a related party under Article 5 of Decree 132.

• If applicable, prepare all three levels of documentation:

  1. Local File

  2. Master File

  3. Country-by-Country Report (if required)

• Ensure pricing methodology is appropriate (e.g., Comparable Uncontrolled Price, Resale Price, Cost Plus).

• Include internal evidence explaining pricing logic in related party contracts.

4. Discrepancies Between Accounting Figures and Tax Declarations – Without Clear Explanations

Common issues:
Tax authorities may identify inconsistencies between financial reports and declared figures, such as:

• Accounting revenue exceeds declared tax revenue.

• Accounting expenses don’t match tax-deductible expenses.

• Other income or costs are incorrectly categorized.

Solutions:

• Prepare a reconciliation statement between the CIT finalization return and the financial statements immediately after filing.

• Clearly explain all adjustments: non-deductible tax items, allocations, carried forward losses, etc.

• Submit a written explanation and reconciliation report (if applicable) along with the CIT return.

Tip: Proactively submitting an explanation letter or commitment note improves transparency and is viewed positively by tax authorities.

Final Thoughts

Being subject to CIT reassessment impacts not only cash flow and profitability but also the reputation of a business—especially those with foreign investment or preparing for IPO.

To minimize avoidable risks, enterprises should:

• Periodically review tax documentation throughout the year, not just at year-end.

• Maintain an internal justification log for frequently scrutinized items.

• When uncertain, seek independent tax advisory to assess risks and provide mitigation strategies before the finalization.

Viet Australia
Viet Australia Auditing Company is an independent auditing organization licensed and established in 2007 in the Socialist Republic of Vietnam.