Deferred corporate income tax is the line item most often adjusted by auditors in consolidated financial statements, because it sits at the junction of two different logical systems: accounting looks at the carrying amounts of assets and liabilities in the consolidated report, while tax looks at the tax base of each separate legal entity. This article covers only deferred tax arising in consolidating the financial statements of a group with a Vietnamese subsidiary — the recognition basis, the typical sources of temporary differences, and the conditions for recognising deferred tax assets. Preparing and auditing consolidated statements in general, and how a foreign parent consolidates a Vietnamese subsidiary’s figures, are separate topics with their own articles on this site.
1. Accounting basis: VAS 17 and Circular 202/2014/TT-BTC
Deferred tax is determined under Vietnamese Accounting Standard 17 on corporate income tax, using the temporary difference method — the gap between the carrying amount of an asset or liability and its tax base; consolidation guidance follows Circular 202/2014/TT-BTC. The core distinction to draw at the outset: deferred tax is an accounting concept for financial reporting; it neither creates nor changes the current tax obligations that each group company declares under CIT Law 67/2025/QH15. Each legal entity still pays tax on its own results; deferred tax appears only at the consolidation layer (and in separate statements where that entity itself has temporary differences). Deferred tax is measured at the tax rates expected to apply in the period when the asset is recovered or the liability settled, based on rates enacted at the reporting date.
2. First source: eliminating unrealised intra-group profit
When a parent sells goods or assets to a subsidiary (or vice versa) at a profit, and those goods or assets remain within the group at the reporting date, the consolidated statements must eliminate the unrealised profit. The elimination reduces the carrying amount of inventory or fixed assets in the consolidated report, while the tax base of that asset at the holding company remains at the internal purchase price — this deductible temporary difference generates a deferred tax asset at the consolidation layer. It is deferred tax that “exists only on consolidation paper”: it appears in no individual entity’s books, and it reverses as the inventory is sold outside the group or the asset is depreciated. The common error is eliminating the intra-group profit but forgetting the corresponding deferred tax, systematically distorting the tax expense in the consolidated income statement.
3. Second source: business combinations and subsidiary losses
On acquiring a subsidiary, its assets and liabilities are recognised at fair value in the consolidated statements while their tax bases at the acquired entity do not change — the gap between fair value and tax base creates deferred tax liabilities (where carrying amount exceeds tax base) or deferred tax assets, and directly affects the goodwill recognised. The third source is a subsidiary’s unused tax losses: in the consolidated statements, a deferred tax asset for carried-forward losses is recognised only when there is convincing evidence that the entity owning the losses will earn sufficient future taxable income to use them within the permitted carry-forward period. That “probable future income” condition is the most debated audit point, especially for chronically loss-making subsidiaries: over-recognition must be written back in a later period, swinging consolidated results at exactly the wrong moment.
4. Presentation, offsetting and disclosure
In the consolidated statements, deferred tax assets and liabilities may be offset only where there is a legal right to offset current tax and they relate to the same tax authority and the same taxable entity, or entities intending to settle net. The notes must disclose: the main types of temporary differences and the corresponding deferred tax; the unrecognised deferred tax assets (for example, a subsidiary’s losses not yet qualifying) with the expiry dates of those losses; and a reconciliation between the consolidated tax expense and accounting profit multiplied by the applicable rate. For a group whose Vietnamese subsidiary enjoys tax incentives, one measurement point matters: temporary differences expected to reverse during the incentive period must be measured at that period’s preferential rate, not by default at the standard 20% — using the wrong measurement rate is the second most common quantitative error after forgetting deferred tax on intra-group profit eliminations.
This article has been quality-reviewed by the FLAW AI Legal Council