The following article briefly summarises the main points of the National Accounting Standards Board’s new Interpretation I-50 Deferred Tax and Exchange Differences Excluded from Taxation.
National Accounting Standards Board’s Interpretations
The interpretations reflect the expert guidance of the National Accounting Standards Board on the practical application of the Czech accounting rules. They aim to support the development of optimal and consistent accounting and financial reporting practices. They primarily focus on areas that are not addressed by Czech accounting regulations, areas where existing guidance is insufficient, and practices that are applied inconsistently.
Although the interpretations are not legally binding, the Supreme Administrative Court has repeatedly recognised them as a valuable tool for supplementing accounting legislation.
Interpretation I-50 Deferred tax and Exchange Differences Excluded from Taxation
Interpretation I-50 (the “Interpretation”), issued in August 2024, addresses a change in tax legislation effective 1 January 2024. This change allows corporate taxpayers to exclude unrealised foreign exchange differences from their income tax base. As a result, a discrepancy arises between the book and tax value of receivables or debts. The Interpretation clarifies whether and how deferred tax should be accounted for in such cases.
For taxpayers who do not enter into the exchange rate exclusion regime, the taxation of exchange rate differences remains unchanged and they are unaffected by the Interpretation.
According to the Interpretation, if a corporate taxpayer opts in the exchange rate exclusion regime, a temporary difference is created, giving ground for the recognition of deferred tax.
The book value of a receivable or debt denominated in a foreign currency will be determined using the accounting valuation at the current (closing) exchange rate. In contrast, the tax value under the exchange rate exclusion regime will only reflect the exchange rate differences that have been included in the tax base.
In the event of a partial settlement of a receivable or debt denominated in a foreign currency, the difference between the book and tax value of the receivable or debt will change and the deferred tax will need to be adjusted proportionately.
Upon full settlement of a foreign currency denominated receivable or debt, the related deferred tax is reversed.
The Interpretation’s justification further elaborates on the procedures to follow in the event of partial or full settlement of a receivable or debt.
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