Exchange rate differences and foreign currency translation
17 February 2012
Andreas Helbing and Fabian Duss of ADB Altorfer Duss & Beilstein outline the rules applying to bookkeeping in foreign currency and the translation of financial statements into local currency and look at how multinational groups are affected by a landmark court decision about the tax treatment of translation differences.
The basis for determining the taxable income of Swiss resident corporations (as well as branch operations) is the financial statements drawn up in line with Swiss commercial law (authoritative principle – Massgeblichkeitsprinzip). Swiss commercial law states that companies are obliged to present their financial statements in Swiss francs at year-end. Companies keeping their accounts in any currency other than the Swiss franc are therefore required to provide for currency translation into the Swiss franc, which normally results in a translation difference (gain or loss). In the past, such translation difference was given tax effect to the extent that it was recorded in the profit and loss statement, since it was part of the net result according to the statutory financial statements.
Based on a Swiss Federal Supreme Court decision of October 2009, translation differences are no longer tax effective. This decision affects all Swiss resident corporate taxpayers that keep their accounts...
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