Business managers and accountants often feel uncomfortable when their business profit and loss results are always different from the tax agency's profit and loss results when finalizing corporate income tax.

The reason for this difference is due to the difference between the income and expense recognition basis of accounting and the tax income and expense basis. The difference that creates this difference is called a temporary difference or a permanent difference. The contents of the temporary difference and the permanent difference are presented as follows:

1. The temporary difference is a difference arising from the difference between the time when income and expenses are recognized by accountants compared to the time when tax income and expenses are recognized. For example, the revenue according to accounting is not eligible to be recognized as revenue, but according to tax, it has to be declared and paid tax. The property is depreciated under accounting for only 4 years but under tax regulations for up to 6 years.
2. Permanent difference is a difference arising from the difference in the accounting condition for revenue and expense recognition compared with the tax law's condition for revenue and expense recognition. For example, the expenditure excesses the prescribed tax rate. The expense has not sufficient tax compliance documentation.

What should business managers and accountants do to resolve the above discrepancies?

For business managers, it is necessary to grasp two contents about temporary difference and permanent difference, and coordinate with departments to make tax planning related to purchasing and selling policies, revenue and expenditure policy in the enterprise. Aim to harmonize business operation and tax law.

For accountants, it is necessary to understand the content of temporary differences and permanent differences in order to properly account and declare, to avoid penalties according to the provisions of tax law.

Note to accountants, when a permanent difference occurs, it cannot be resolved in accounting, accountants have to accept it, because its name also says it "permanent difference". When there is a temporary difference, accountants solve this difference by accounting standard number 17, corporate income tax or commonly known as deferred tax standard.

Expanding to the content just presented, businesses and accountants also find that the tax authorities have also prepared for us to have this difference. If you accounting in compliance with tax law 100%, you will never see the difference between tax and accounting and never apply the criteria (B2), (B3), (B9), (B10) in the corporate income tax finalization declaration. We see that, the corporate income tax finalization declaration begins with the target (A1), which is the profit before tax, the criteria (A1) equals the correct target, with code 50 in the statement of results business activities, and then the criteria from (B1) onwards is to start applying the tax law.

In short, when understanding temporary and permanent differences, businesses must plan an action plan on the differences between accounting and tax.

Examples of some of the fundamental differences between accounting and taxation are presented below:

• in terms of revenue, according to accounting, revenue is recognized when the service is completed, but under tax, revenue is recognized when an invoice has been issued or payment has been collected, resulting in a deductible temporary difference.
• in terms of depreciation, according to accounting, depreciation is recorded over the estimated useful life of the asset, but according to tax, it is applied according to the provisions of the depreciation framework under Circular 45 in 2013, resulting in the temporary difference is deductible or the difference is taxable in the future.
• in terms of provision for doubtful receivables, according to the accounting, it depends on the management of the enterprise, but according to the tax recorded according to the specific guidance of Circular 48 in 2019, the result can lead to deductible temporary difference or taxable difference in the future.
• the administrative fine, which is recognized by the accountant according to the fact that the cost is incurred, but the tax is excluded from the deductible expense, causing the taxable income to increase, resulting in a permanent difference between accounting and tax.
• expenses without valid invoices and vouchers are recorded according to the actual expenses incurred, but according to tax, they are excluded from the deductible expenses, making taxable income increase, resulting in permanent disparity between accounting and tax.

A detailed and appropriate action plan shall save corporate income tax costs. Good luck to you.