- Revenue Measurement and
Tax Invoices
- Taxation on Returned
Goods Taking Place Across Different Accounting
Periods
- Taxation on Returned
Goods With Quality or Specification Problem in Import-Export
Transactions
- Taxation on
Compensation Goods at No Consideration Relating to
Import-export Transactions
Revenue Measurement and Tax
Invoices A wholesaler sells goods
to a retailer for RMB1,000,000, giving a trade discount of 20%
to the retailer. The wholesaler issues VAT Special Invoices
RMB 1 million, and issues a credit note of RMB200,000. The
analysis of the accounting and tax treatment are as per below:
Sales recognized under accounting rules: RMB 0.8 million;
the sales amount under VAT and IT rules: RMB 1 million.
The use of credit note results in higher amount of tax
payable. The trade discount should have been printed in the
same VAT special invoices in order to get the deduction from
gross revenue. See SAT document Guo Shui Fa (1997) No.
472
After receipt of goods, the retailer discovers that some
goods have quality problems. Wholesaler agrees to give a 10%
discount on gross amount of RMB 1 million. Accordingly, it
issues a second credit note for 0.1 million to the retailer.
The account receivable from retailer is further reduced from
0.8 million to 0.7 million.
The tax implication is below:
The use of credit note is NOT tax efficient.
Since the quality problem is discovered after delivery, the
wholesaler cannot state the sales discount in the original VAT
special invoices.
Two possible treatments:
If the retailer can return tax invoices, the wholesaler can
issue revised tax invoices; If retailer already made payment
or has used the tax invoices for accounting purposes,
wholesaler needs to obtain from retailer a copy of
"Certification of Purchase Returns or Sales Concession" issued
by the tax bureau in charge of the city where retailer is
located before wholesaler can issue credit note and reduce the
sales amount for VAT and IT purposes. See SAT Document Guo
Shui Fa (1993) No. 150;
Taxation on Returned Goods Taking
Place Across Different Accounting Periods Company A sold goods costing RMB70 to Company B for
RMB100 on 10th December 20x1. Company B returned the goods on
28th January 20x2. The board of directors of Company A had not
approved the financial statement for the year ended 20x1 until
31st March 20x2. Assuming that the corporate income tax rate
is 30% and we also ignore the legal requirement for profit
appropriations. In accordance with the accounting rules for
post-balance sheet events, the accounting entries for goods
returned taking place after the balance sheet date but before
the approval of the accounting reports will be as follows:
(1) Adjusting sales income
Dr. Prior year adjustment
(Profit &
Loss)
-100
Dr. VAT
payable
-17
Cr. Account
Receivable
-117
(2) Adjusting cost of sales
Dr. Stock in
trade
+70
Cr. Prior year adjustment
(P/L)
+70
(3) Adjusting the income tax 30% x 30 = 9
Dr. Income
tax
payable
- 9
Cr. Prior year
adjustment +9
(4) Adjusting the retained profit
Dr. Retained
profit
-21
Cr. Prior year
adjustment +21
The balance sheet extracts will show the following:
| Assets |
|
Liability |
|
| Inventory |
+70 |
Retained profit |
-21 |
| Account receivable |
-117 |
Tax payable |
-17-9 |
| Total |
-47 |
Total |
-47 |
The PRC accounting rules require the adjustment to be made
to the profits of the preceding year in accordance with the
rules for post-balance sheet events since the directors have
not approved the accounting reports. The VAT rules do not
allow the return of goods to be adjusted retrospectively. The
adjustment should be made in January 2005 when the return of
goods took place. Again it is assumed that the accounting
profit and the taxable income report no differences, RMB1,000
in 2004 and RMB3,000 in 2005 respectively. The accounting
reports, income tax returns and VAT returns will show the
adjustments in different periods:
|
Profit and Loss A/C |
Income Tax Return |
VAT Returns |
| Income 2004 |
1,000 -100 |
1,000 -100 |
1,000 |
| Income 2005 |
2,000 |
2,000 |
2,000-100 |
| Both 2004 and 2005 |
2,900 |
2,900 |
2,900 |
If the buyer returns the tax invoices to the seller in the
following month or thereafter, the seller should issue an
invoice with the same amount in the negative through the
anti-forgery tax invoice controlling system, and make
adjustment in the VAT return in the month the goods and the
invoice are returned.
Taxation on Returned Goods With
Quality or Specification Problem in Import-Export Transactions
If imported goods are returned in
original condition within one year from the importation date,
the Chinese customs shall not impose export tax; the consignee
can apply for the refund of import duty and VAT within one
year from the date of duty and VAT payment.
If export goods are returned in original condition within
one year from the exportation date, the Chinese customs shall
not impose import duty and VAT; the consignor can get a refund
for export tax, if any, within one year from the date of
making the export tax payment, subject to the return of VAT
refund for export goods.
Taxation on Compensation Goods at
No Consideration Relating to Import-export Transactions
After completing the procedure for
the return of import goods or surrendering the import goods to
the customs, the consignee can import identical compensation
goods at no consideration and tax-free, on condition that it
has not claimed back the duty and VAT paid previously.
After the return of export goods, the consignor can export
identical compensation goods at no consideration and
tax-free.
The taxpayer shall exercise its right to apply for duty and
tax exemption on the compensation goods within the warranty
period under the contract, subject to a maximum period of
three years from the import or export date of the original
goods. In case that the taxpayer does not submit the
application within the stipulated period, the customs shall
not entertain the application for duty and tax
exemption. | 
