THE MINISTRY OF FINANCE
Circular No. 89/203/TT-BTC of June 28, 2013, amending and supplementing the Ministry of Finance’s Circular No. 228/2009/TT-BTC of December 7, 2009, guiding the setting-up and use of provisions for devaluation of inventories, loss of financial investments, receivable bad debts and the warranty for products, goods and construction and installation works at enterprises
Pursuant to the Securities Law;
Pursuant to the Government’s Decree No. 124/2008/ND-CP of December 11, 2008, detailing and guiding a number of articles of the Law on Enterprise Income Tax;
Pursuant to the Government’s Decree No. 122/2011/ND-CP of December 27, 2011, amending and supplementing a number of articles of the Government’s Decree No. 124/2008/ND-CP of December 11, 2008, detailing and guiding a number of articles of the Law on Enterprise Income Tax;
Pursuant to the Government’s Decree No. 118/2008/ND-CP of November 27, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;
At the proposal of the director of the Corporate Finance Department;
The Minister of Finance promulgates the Circular to amend and supplement the Ministry of Finance’s Circular No. 228/2009/TT-BTC of December 7, 2009, guiding the setting-up and use of provisions for devaluation of inventories, loss of financial investments, receivable bad debts and the warranty for products, goods and construction and installation works at enterprises (below referred to as Circular No. 228/2009/TT-BTC), as follows:
Article 1. To amend and supplement Clause 2, Article 5 of Circular No. 228/2009/TT-BTC as follows:
a/ Objects: Capital amounts currently invested by an enterprise in economic organizations established under law (including limited liability companies and joint-stock companies ineligible for the setting-up of provisions under Clause 1, Article 5 of Circular No. 228/2009/TT-BTC, joint-venture companies and partnerships) and other long-term investments for which provisions must be set up if such economic organizations suffer losses (except losses anticipated in the business plans before investment is made).
Provisions for long-term investments must be set up for investments presented according to the method of historical cost but not for investments presented according to the method of equity capital in accordance with law.
b/ Conditions: An enterprise may set up provisions only when the owner’s total actual investment capital is larger than the total value of actual equity capital of the invested economic organization;
c/ Method of setting up provisions:
The level of provision to be set up for each financial investment equals the invested capital amount and is calculated according to the following formula:
Level of provision to be set up for each financial investment | = | { | Total capital actually invested by the parties in the economic organization | - | Actual equity capital of the economic organization | } | x | Capital amount invested by each party |
Total capital actually invested by the parties in the economic organization |
In which:
- Total capital actually invested by the parties in the economic organization is determined in the economic organization’s annual accounting balance sheet at the time of setting up the provision (codes 411 and 412 of the accounting balance sheet, promulgated together with the Minister of Finance’s Decision No. 15/2006/QD-BTC of March 20, 2006);
- The actual equity capital of the economic organization is determined in the economic organization’s annual accounting balance sheet at the time of setting up the provision (code 410 of the accounting balance sheet, promulgated together with the Minister of Finance’s Decision No. 15/2006/QD-BTC of March 20, 2006).
Example: Company A, a construction joint-stock company, has the charter capital of VND 50 billion and 3 shareholders, including company B holding 50% of the charter capital, equivalent to VND 25 billion, company C holding 30% of the charter capital, equivalent to VND 15 billion, and company D holding 20% of the charter capital, equivalent to VND 10 billion. These companies have sufficiently invested capital according to their holding rate of charter capital, so the total capital invested by companies B, C and D in company A is VND 50 billion.
In 2012, due to economic recession, company A suffered a loss of VND 6 billion, making its equity capital (code 410 of the accounting balance sheet) drop to VND 44 billion.
Consequently, in 2012, when setting up provisions for financial investments in company A, companies B, C and D had to base themselves on the 2012 financial statement of company A. The levels of loss provisions set up for the financial investments in company A are calculated as follows:
The level of the provision set up for company B’s financial investment is:
(VND 50 billion – VND 44 billion) x 25/50 = VND 3 billion.
The level of the provision set up for company C’s financial investment is:
(VND 50 billion – VND 44 billion) x 15/50 = VND 1.8 billion.
The level of the provision set up for company D’s financial investment is:
(VND 50 billion – VND 44 billion) x 10/50 = VND 1.2 billion.
d/ Handling of provisions:
At the time of setting up provisions, if the capital amounts invested in economic organizations are lost because such organizations suffer losses, loss provisions for financial investments must be set up under Item c of this Article;
If the loss provision to be set up for financial investments equals the balance of the provision, the enterprise is not required to set up such loss provision;
If the to-be-set up provision is larger than the balance of the provision, the enterprise shall additionally include the difference in its financial expenses.
If the to-be-set up provision is smaller than the balance of the provision, the enterprise shall refund the difference and record it as a decrease in its financial expenses.
Article 2. Organization of implementation
1. This Circular takes effect on July 26, 2013.
2. For enterprises which have set up provisions for financial investments on the basis of the same year’s financial statements of the invested economic organizations, if competent inspection and examination agencies exclude improper expenses from deductible expenses when determining taxable incomes, the increased payable enterprise income tax amounts already paid by the enterprises into the state budget must be included in the payable amounts of the following year (enterprises which have not yet paid tax are neither required to pay it nor required to adjust their accounting books).
Enterprises which have set up provisions for financial investments on the basis of the previous year’s financial statements of the invested economic organizations (e.g., parent companies based themselves on the 2010 financial statements of the invested economic organizations to set up provisions for long-term financial investments in 2011), and declared tax in accordance with law are not required to adjust the setting-up of provisions for financial investments under this Circular.
Any problems arising in the course of implementation should be promptly reported to the Ministry of Finance for settlement.-
For the Minister of Finance
Deputy Minister
TRAN VAN HIEU
Vietnamese
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