Bad debt provisioning: corporate tax treatment

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This year the Ministry of Finance (MOF) intends to work on expanding the tax legislation that deals with the CIT treatment of provisioning for bad and doubtful debts. We can expect comment on provisioning as a percentage of the underlying debt and on provisioning under IFRS 9. This article explores some other questions about receivables on which the MOF has commented.
Provisioning before 2018
1) A company recovers a debt or reduces a special provision made before 2018 if that debt was included in taxable income in an earlier financial period.
The MOF says the company may deduct any debts recovered in 2018 and 2019, recognised before 2018 and provisioned, from its CIT base for the tax period by reporting those amounts on line 21 of the CIT return. Also, when writing off a debt that was recognised before 2018 and meets the conditions of section 9(3) of the CIT Act, the company may reduce its CIT base by reporting those amounts on the same line.
2) A debt the company recognised before 2018 meets the conditions of section 9(3) of the new CIT Act in 2018 or later if that debt has been written off or specially provisioned and CIT has been paid on it under the CIT Act applicable before 2018.
On the second point, the MOF said the company is not permitted to deduct any debt recognised and written off before 2018 from its CIT base in 2018 and 2019. Such a debt is covered by the rules of the CIT Act applicable before 2018 even if the debt is found to meet the new conditions of section 9(3) of the CIT Act in 2019.
PwC view
The MOF has given a favourable answer to the first question by broadly interpreting paragraph 31 of the transition rules of the CIT Act and thus demonstrating the purpose of their adoption. But the MOF has yet to comment on a company recovering an unprovisioned debt it wrote off in past years. Given the complex CIT treatment of bad and doubtful debts, we have been expecting some comment from the MOF on this topic.
Agate Ziverte
Senior Manager, Tax Services
Tel: +371 67094400
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