Following the introduction of the option to exclude unrealised exchange differences from the income tax base, which was introduced by the amendment to the Income Tax Act with effect from 1 January 2024 (we informed you about this option in BDO NEWS 11/2023), a new Interpretation of the National Accounting Council was issued in August this year with the designation I-50: Deferred tax and exchange differences excluded from taxation.
According to the regulation in force until the end of 2023, the exchange rate difference entered both the profit or loss and the tax base. However, from 2024, corporate taxpayers have the option to choose an alternative approach, which is a special regime that allows them to exclude selected exchange differences from the income tax base. The application of this regime results in a temporary difference between the book and tax value of the receivable/debt at the balance sheet date.
The new Interpretation answers the question of whether deferred tax arises on exchange differences excluded from the income tax base at the balance sheet date and other related issues.
According to the text of the Interpretation, if the taxpayer uses the option of the special regime for the exclusion of unrealised exchange rate differences, a situation arises in which the book and tax value of the receivable/debt expressed in a foreign currency differs and the resulting temporary difference is a source of deferred tax.
The book value of the foreign currency receivable/debt will be based on the accounting valuation at the closing rate and the tax value will take into account only those exchange rate differences that have so far entered the tax base in the special regime.
Partial settlement of the receivable/debt will result in partial settlement of the deferred tax. In the event of full settlement, the deferred tax will be dissolved as the basis for its existence will cease to exist.
The rationale for the Interpretation further discusses when a deferred tax asset arises and when a deferred tax liability arises.
In conclusion, the regime of excluding unrealised exchange rate differences may bring certain advantages to taxpayers, but it is necessary to consider its potential disadvantages, such as the need to remain in this regime for at least the statutory period, the relative complexity of recording excluded exchange rate differences and, last but not least, the calculation of the related deferred tax. These factors can significantly affect the administrative complexity and overall efficiency of the scheme. It is therefore important that taxpayers carefully consider all aspects before deciding to use it.
autor: Dana Kellnerová
According to the regulation in force until the end of 2023, the exchange rate difference entered both the profit or loss and the tax base. However, from 2024, corporate taxpayers have the option to choose an alternative approach, which is a special regime that allows them to exclude selected exchange differences from the income tax base. The application of this regime results in a temporary difference between the book and tax value of the receivable/debt at the balance sheet date.
The new Interpretation answers the question of whether deferred tax arises on exchange differences excluded from the income tax base at the balance sheet date and other related issues.
According to the text of the Interpretation, if the taxpayer uses the option of the special regime for the exclusion of unrealised exchange rate differences, a situation arises in which the book and tax value of the receivable/debt expressed in a foreign currency differs and the resulting temporary difference is a source of deferred tax.
The book value of the foreign currency receivable/debt will be based on the accounting valuation at the closing rate and the tax value will take into account only those exchange rate differences that have so far entered the tax base in the special regime.
Partial settlement of the receivable/debt will result in partial settlement of the deferred tax. In the event of full settlement, the deferred tax will be dissolved as the basis for its existence will cease to exist.
The rationale for the Interpretation further discusses when a deferred tax asset arises and when a deferred tax liability arises.
In conclusion, the regime of excluding unrealised exchange rate differences may bring certain advantages to taxpayers, but it is necessary to consider its potential disadvantages, such as the need to remain in this regime for at least the statutory period, the relative complexity of recording excluded exchange rate differences and, last but not least, the calculation of the related deferred tax. These factors can significantly affect the administrative complexity and overall efficiency of the scheme. It is therefore important that taxpayers carefully consider all aspects before deciding to use it.
autor: Dana Kellnerová