Unrealised exchange differences in the light of new information General Financial Directorate
The General Financial Directorate (hereinafter “GFD”) has published some information on the issue of unrealised foreign exchange differences, which corresponds to the existing case law and tax law changes effective from 1 January 2014. In accordance with the conclusions of the current law, about which we informed you in the February 2014 issue of our newsletter, the unrealised exchange rate differences do not constitute a taxable income because they arise only on the basis of the conversion and, therefore, have no relevant basis in property management.
In the newly published information, the GFD allows, in direct conflict with the original negative reaction from the beginning of 2013, the possibility of proceeding until 31 December 2013 in accordance with the case law of the Supreme Administrative Court, i.e. unrealised foreign exchange differences recognised in the financial statements for the reporting period that started in 2013 are not to be included in the tax base. However, there must be compliance with the following conditions:
- With unrealised foreign exchange gains, unrealised foreign exchange losses are also excluded.
- It is necessary to clearly define for which balance sheet items, registered in a foreign currency, the unrealised exchange rate differences will be moved to for the period of the realisation.
- At the time of realisation, it is necessary to subject the actual realised gain / loss to taxation, not the loss recognised in the accounts.
Due to the introduction of the amendment to the Income Tax Act as of 1 January 2014, the unrealised exchange differences recognised in the accounts in the tax period that started in 2014 will be taxed in the period in which they are recognised in the accounts. The financial statements for the reporting period that started in 2013 is the last period in which it is possible to move up the taxation of unrealised foreign exchange differences to the period of realisation. We are ready to analyse the actual situation in your company and recommend the appropriate tax treatment. In any case, we have already recommended (in our articles on financial statements for the year 2013) that you separate very carefully (un)realised gains (losses) of the analytical accounts.
Author: Michal Daňsa