Elinore Richardson Czech taxpayers generally base their income reporting on their financial accounts. Accordingly, the tax treatment of realised and unrealised forex gains/ losses has been generally regarded as following accounting treatment. In a judgment, dated April 19 2012 (5 Afs 45/2011 – 94), the Czech Supreme Administrative Court, in a landmark decision, concluded that such unrealised gains and losses, included in profit and loss under accepted accounting principles, nonetheless, do not constitute income for Czech tax purposes. MP Development, the taxpayer, had contracted long term foreign currency denominated loans during its 2004 to 2006 fiscal periods and recognised translation gains. It originally reported these gains for income tax purposes, but subsequently, by appeal against its own filings, asked that the amounts reported be excluded. Though the court, in reversing the lower court decision (which had found for the tax administration) disagreed with the taxpayer's argument that the accounting treatment (defined by decree) was incorrect, it did find that mere translation gains/ losses, recognised in a taxpayer's financial accounts, should be treated as tax neutral, where no physical flow of cash would arise in the event of an actual realisation transaction.
June 30 2012
