The Possibility of Exclusion of Unrealised Exchange Rate Differences from the Income Tax Base

2. November 2023 | Reading Time: 2 Min

The draft amendment to the Income Tax Act within the Consolidation Package brings the option for taxpayers to exclude unrealised exchange rate differences from the tax base in the period in which they arise and to include them in the tax base in the period when the exchange rate difference is realised.

The above possibility can be applied by a taxpayer who

a) is an accounting entity and keeps a double-entry bookkeeping system,

b) is not a debtor against whom insolvency proceedings have been initiated,

c) is not in liquidation,

d) submits a notification to the tax authority of entering the exchange rate exclusion regime.

The notification of entry into such a regime must be submitted to the tax authority within 3 months of the first day of the tax period. Assuming successful approval, the deadline for the 2024 tax year is by the end of March 2024.

The taxation of expenses or incomes will occur in the accounting period when the exchange difference is realised, e.g., generally when the debt is paid off or the receivable/liability is written off. The unrealised exchange rate difference will be included in the tax base at the time of realisation, i.e., when the currency risk ceases.

During tax periods where the taxpayer is in the exchange rate difference exclusion regime, the taxpayer excludes all unrealised exchange differences from the tax base. Contrariwise, if the regime is terminated, all previously excluded exchange rate differences must be taxed, whether they have been realised or not.

Termination of this regime may be voluntary or forced by the circumstances specified in the law. In the event of a voluntary termination, the taxpayer ceases to be a taxpayer under the exchange rate exclusion regime upon the end of the second tax period following the tax period in which the taxpayer notifies the tax authority of the exit from the exchange rate exclusion regime.