1. Regarding corporate income tax
Article 4 of Circular 96/2015/TT-BTC stipulates the following regarding damaged goods:
“b) Goods damaged due to natural biochemical changes, or goods that have expired and are not eligible for compensation, are deductible expenses when determining taxable income.
The documentation for goods damaged due to natural biochemical changes, or goods that have expired, is included in deductible expenses as follows:
– Inventory report of damaged goods prepared by the business.
The inventory record of damaged goods must clearly identify the value of the damaged goods, the cause of the damage; the type, quantity, and value of recoverable goods (if any), along with a list of damaged goods' inventory movements, signed and certified by the legal representative of the enterprise, who is legally responsible for its accuracy.
– The claim file accepted by the insurance company (if any).
– Documents specifying the responsibility of organizations and individuals to provide compensation (if any).
c) The aforementioned documents shall be kept at the enterprise and presented to the tax authorities upon request.”
–> All records and documents compiled during the handling of damaged goods are stored at the business and provided to the tax authorities for explanation when an inspection is ordered.
If the documentation is fully verified, the costs associated with these damaged goods will be considered reasonable expenses when calculating corporate income tax.
2. Regarding VAT
Regulations in Article 14 of Circular 219/2013/TT-BTC on input VAT deduction.
"Input VAT on goods and services used for the production and business of goods and services subject to VAT is fully deductible, including uncompensated input VAT on VAT-taxable goods that have been lost."
Cases of uncompensated losses eligible for input VAT deduction include: natural disasters, fires, losses not covered by insurance, goods that have deteriorated in quality or expired and must be destroyed. Businesses must have complete documentation to prove these uncompensated losses in order to claim the tax deduction.”
Therefore, if goods are defective or past their expiration date and must be destroyed, the VAT can still be deducted.
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Solution:
The inventory cost associated with these liquidations is often substantial. Therefore, businesses carrying out these transactions need to maintain complete liquidation records and documentation, and provide a reasonable explanation when audited by the tax authorities.
