Tax audit and inspection: common issues

5/9/2021

Common issues when tax authorities audit tax at enterprises: 

1. Error of purchasing invoices 

Under the guidance in Circular 39/2014 / TT-BTC detailing invoices for selling goods and providing services. The Seller may have the following errors: 

- Attached list without the seller's stamp 

- No information about seller and/or buyer 

- Lack of information: Sellers, Buyers, Authorized person ... 

 

2. Loans and interest expenses 

Tax authorities will pay special attention to corporate loans, specifically: 

- The ratio of borrowings on capital 

- Short-term or long-term loan 

- The loan is suitable for production and business situation 

 

3. Procedures for capital increase and capital structure 

Enterprises applying for capital increase and capital structure change always have great changes on operations. Attention should be paid to: 

- Time of increase / decrease of capital 

- Reasons for increasing / decreasing capital 

- Form of capital increase / decrease 

- Ability to prove financial capacity of owners 

- Accurate capital accounting 

 

4. Capital contribution / investment in other channels 

The taking of capital from a business to contribute or invest in another investment will have to be very clear with tax authority. Especially at the time of capital contribution, it should be noted: 

- Clear distribution of profits and losses 

- The capital contribution ratio is specifically accounted 

- Capital contribution approval documents 

- Profits from investment activities 

 

5. Hospitality expenses 

The hospitality expense is a type of expense that every tax agency is concerned with. This fee is only reasonable with the following information: 

- Restaurant information with exact time and location 

- The invoice information is sufficient. 

Information on the invoice must include: 

- Service name: Food and drink service 

- Adequate list attached to the invoice 

- The invoice must contain sufficient information to be counted as appropriate. 

In addition, it should be noted: Hospitality expenses must not exceed 15% of the total deductible expenses. 

 

6. Gasoline expenses 

The enterprise's expenses for gasoline must be carefully examined:

- Is it really reasonable for fuel consumption of a car (about how many liters of gasoline / 100 km)?

- Having enough supporting documents: Vehicle serving log, clearly stating the distance traveled, odometer index, vehicle and fuel condition... to manage costs and avoid risks of VAT and risk of deductible expenses when the tax authority inspect.

To the transportation service business:

- Gasoline cost: Appropriate to the revenue of the business (Ratio of 10 ~ 30%)

- The cost must be reviewed and confirmed with the service user

 

7. Transportation and travelling expenses

Transportation cost is a cost incurred in a large amount for businesses. This cost can also cause problems. Enterprises need to carefully prepare the following details:

- Transportation contract: If you hire a carrier for fixed terms

- List of freight: According to the contract, trip

- Travel support for employees: Adequate policy and sufficient documents to employees

- When the tax authority audits or inspects, if it is unable to provide documents proving that the freight costs are actually expenses incurred, serving the production and business activities, proving the route, the quantity transported goods…, these invoices will not be deductible for VAT and CIT.

 

8. Owner's salary expenses

At Item d, Point 2.5, Clause 2, Article 6 of Circular No. 78/2014 / TT-BTC dated June 18, 2014 of the Ministry of Finance, effective from August 2, 2014, providing guidance on expenses deductible when determining taxable income includes:

“d) Salaries and wages of owner of a private enterprise or owner of a one-member limited liability company (owned by an individual); Remuneration paid to the founders, members of the Members' Council, the Board of Directors who are not directly involved in operating production and business. ”

Thus, with the owner companies of the above, no salaries, wages, remuneration expenses are declared. If declared, the tax agency will remove and charge the late payment.

 

9. Salary expenses

Salary costs are one of the most noticeable expenses in recent times. Enterprises should pay attention to the following issues:

- Ensure labor contracts are sufficient

- Social insurance for employees in accordance with the law

- Check and confirm the PIT situation

With salary costs, especially production and construction enterprises, will be examined very carefully. Businesses need special attention.

 

10. Depreciation of fixed assets

Fixed assets should be depreciated according to the following standards:

- Consistent monthly and annually depreciation

- Time frame depreciation according to the regulation

- Depreciation method

Fixed assets must be equipment and tools according to Circular No. 45/2013 / TT-BTC standard.

 

11. Allocation of tools and instruments expenses

Accountants must clearly understand the nature of assets in order to accurately distribute them (Consumables, tools, fixed assets)

- Transfer from fixed assets to tools and instruments

- The cost of allocating tools and instruments must be in accordance with the type of expense

 

12. Goods import / export price

Goods entering the warehouse need to comply with:

- Accounting correctly to account 156 (Goods)

- Warehousing price: Purchase price of goods + Costs incurred from the purchase of goods - Discounts (discounts, promotions ...)

- Check carefully the cost of goods sold, export price

 

13. Report on inventory

Inventories are goods of a trading enterprise based on purchased/ sold invoices and vouchers. Enterprises should pay attention to the following issues:

- Do not let the status "negative stock" (Sales invoices come before input invoices) -> Issue invoices on time

- Warehouse must be reasonable with business status

 

14. The ratio of cost of goods sold to revenue

The ratio of cost of goods sold must be reasonable with the business situation.

- For commercial enterprises, this rate is up to 80%.

- For other types, the rate will be lower

- Must record the standard price of goods in stock (If an increase or decrease will affect this ratio)

In case: Cost of goods sold of the unit is greater than or equal to revenue. When the tax authorities audit or inspect, they can fix prices on the basis of normal transaction prices in the market.

In addition, for businesses with large revenue, the cost of goods sold accounts for a high proportion, the loss is prolonged ... the tax authorities often suspect that the enterprise has tax fraud, tax evasion and may be sanctioned 1 - 3 times (Articles 107 and 108 of the Law on Tax Administration).

 

15. Allocate the cost of the customer conference

Attention should be paid to preparing complete records for these expenses, include:

- Customer conference implementation plan

- Contract, invoice, payment document (specify budget, place and time of implementation)

- List of guests, information of guests.

- Photos, videos ... proof.

When there are enough proofs, the tax office will accept these expenses deductible.

 

16. Credit side balance of account 131

There are issues that could arise with account 131 in this case:

- Receivable from customers with a large amount of money

- Customers who pay in advance with money

- Escrow with the distribution

- Account balance last for long time

With these transactions, the provision of contracts, receipts, payment receipts and explanations will be required due to the possibility of revenue evasion.

 

17. Allocate the cost of promotional goods / donations / gifts

Promotional products / giveaways to the distribution / trade business are one of the items that will be very noticeable. Therefore, it is necessary to pay attention to preparing a complete dossier:

- Application for promotion to the Department of Industry and Trade

- Actual promotions

- Image proof (input, output)

- Invoice documents related