Case Law30/06/12 / cata_tax-news

Unrealized Foreign Exchange Gains

The Supreme Administrative Court of the Czech Republic held on 19 April 2012 (see judgment No. 5 Afs 45/2011-94) that unrealized foreign exchange gains cannot be deemed to constitute taxable income since they are established merely to convert on a particular date a foreign currency to the national currency. As such, the tax entity’s assets do not actually increase.

The Court held that an unrealized foreign exchange difference only monitors the development of the value of a liability in Czech crowns without any tie to any actual realization. For tax purposes, the income is realized upon payment of the liability. The same applies to unrealized foreign exchange losses.

The GFD considers the ruling to be a decision on a particular case rather than an established case-law ruling and, therefore, sees no grounds for altering its procedure accordingly. The tax authorities will therefore continue to treat foreign exchange differences as they have done so far.