The procedure of tax accounting of exchange differences changed twice during 2022. Hereinafter we will consider the new temporary procedure for accounting of exchange differences in tax accounting.
Exchange differences in tax accounting – general procedure
Let us remind the general procedure for inclusion of exchange differences in the profit tax base applied before introduction of temporary provisions. In case of revaluation of claims (liabilities) denominated in conventional units or in a foreign currency by assessment of the profit tax, the foreign exchange gains (or losses) are included in non-operating income (or expenses) as of the last day of the current month in the reporting period and(or) as of the date of discharge of a claim (liability), including partial, whichever is earlier (cl. 11 cl. 2 Art. 250, sub-cl. 7 cl.4 Art. 271 of the Russian Federation Tax Code, sub-cl. 5 cl. 1 Art. 265, sub-cl. 6 cl. 7 Art. 272 of the Russian Federation Tax Code).
Special (temporary) procedure for recognition of income (expenses) based only on exchange differences arising during revaluation of claims and liabilities is defined in sub-cl. 7.1 cl. 4 Art. 271 of the Russian Federation Tax Code and sub-cl. 6.1 cl.7 Art. 272 of the Russian Federation Tax Code respectively. These changes do not apply to exchange differences arising during revaluation of assets denominated in a foreign currency. Initially, the temporary rules introduced by the Federal Law No. 67-FZ dated 26/03/2022 applied to foreign exchange gains for 2022-2024, foreign exchange losses for 2023-2024.
According to provisions of sub-cl 7, cl. 4, Art. 271 of the Russian Federation Tax Code, the foreign exchange gains in 2022 arise in income only on the date of discharge (fulfilment) of claims (liabilities). This procedure for reflecting the foreign exchange gains in income also applies in 2023-2024. Based on explanations of the Russian Ministry of Finance and Federal Tax Service of the Russian Federation (Letters of the Russian Ministry of Finance dated 12/07/2022 No. 03-03-06/1/66936, dated 20/06/2022 No. 03-03-06/1/58085), the foreign exchange gains assessed in 2022-2024 as of the end of a month are summed up until termination (discharge) of a claim (liability), but are included in the profit tax base only “upon discharge”,
Initially, the accounting of exchange differences (in 2022) suggested the preservation of the general accounting rules. So, foreign exchange losses on revaluation of claims (liabilities) denominated in conventional units or in a foreign currency by assessment of the profit tax must be included in non-operating expenses (sub-cl. 5 cl. 1 Art. 265, sub-cl. 6, 6.1 cl. 7 Art. 272 of the Russian Federation Tax Code) as of the last day of the current month and/or the date of discharge of a claim or liability, including partial. Reflection of exchange differences “upon discharge” was expected only in 2023-2024.
However, in December 2022 the Federal Law No. 523-FZ dated 19/12/2022 introduced the provisions (sub-cl. 6.2, cl. 7, Art. 272 of the Russian Federation Tax Code) allowing the taxpayer to make a voluntary decision to recognize the exchange differences in 2022 only on the date of discharge of a claim (liability).
At the same time, pursuant to position of the Russian Ministry of Finance and Federal Tax Service of the Russian Federation (Letter of the Federal Tax Service of Russia dated 26/12/2022 No. СД-4-3/17561@), the foreign exchange gains arising under each claim or liability, which is outstanding as of December 31, 2022, must be compared with each other. If foreign exchange losses exceed the foreign exchange gains, such excess is recognized when assessing the profit tax base for 2022. If foreign exchange gains exceed the foreign exchange losses, they must be recognized when assessing the base in the period, in which the claim or liability is discharged.
In other words, when recognizing the exchange differences in tax accounts, the “summation” of differences is possible (!). Please note, that Tax Code does not provide for such method of reflecting the exchange differences. However, apparently, the regulatory bodies decided to implement a “new approach”. So far as in 2023 the temporary rules of reflecting the exchange differences in income and expenses “upon discharge” are binding upon the taxpayers, one may assume that the approach with “summation” of exchange differences will be applied in 2023 as well. Please be reminded once again, that the procedure for reflection of exchange difference only upon discharge, including partial, of a claim (liability) in 2022 was voluntary.
In the example we use the “balanced” approach of the Federal Tax Service of the Russian Federation described in the letter No. СД-4-3/17561@ dated 26/12/2022.
On January 20, 2023, the organization sold products at the price of 1,000 c.u.
C.u. exchange rate as of the date of recognition of accounts receivable is (conditionally) RUB1.
As of January 31, 2023, the buyer’s debt is not repaid. On January 31, the organization recognizes the liability (1,000 c.u.) at the exchange rate as of January 31.
The exchange rate as of January 31 is (conditionally) RUB2. The exchange difference (gains) – RUB1,000 (1,000 c.u.* (difference of exchange rates)).
As of February 28, 2023, the buyer’s debt is still not repaid.
The exchange rate as of February 28 is (conditionally) RUB1.5. The exchange difference as of February 28 – RUB500 (1,000 c.u.* (difference of exchange rates)).
On March 3, 2023, the buyer repays the debt of 1,000 c.u.
The exchange rate as of the repayment date is RUB3 (conditionally). The exchange difference as of March 3 – RUB1,500 (1,000 c.u.* (difference of exchange rates)).
It is on March 3 that the exchange difference arises in tax accounting.
Calculation:
Exchange difference as of January 31 – RUB1,000 gain
Exchange difference as of February 28 – RUB500 loss
Exchange difference as of March 3 – RUB1,500 gain.
Total:
non-operating income of (1,000 – 500 + 1,500) = RUB2,000 is formed in tax accounting on March 3.
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