Cost of Goods Sold
Inventory management will be the focal point for cost of goods sold. Some of the key questions you will need to ask is,
1. Are inventory recognized at the right timing when goods are shipped from overseas?
2. Are goods returned being recognized as inventory at correct timing with sales cancelation?
3. Are recognition of sales and costs of goods in line at year end?
Significant changes in profitability from year to year in earnings after sales needs to be carefully monitored. Any hike up in costs to sales ratio must have logical explanation. This may trigger audits in transfer pricing as well if it involves intercompany transactions.
Since recognition differences in inventory count effects earning after sales, tax auditors in Japan takes a close look in inventory count methods. In case there is a difference in inventory count method between company accounting policy and tax code principle in Japan, there are 2 ways of dealing such situation.
Resolution 1: Consult with your tax accountant to see if there is a possibility of electing the inventory count method of your company by submitting a notification form.
Resolution 2: Work with your tax accountant to make adjustments for taxable income tax.