Currency gains and losses and IFRS
Tax implications of IFRS on foreign currency gains and losses resulting from long-term intercompany loans
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Intercompany loans are a key part of debt structures for most multinational companies, facilitating treasury functions, funding acquisitions, and strategically moving operating cash. In crossing country borders, these loans may have the risk of fluctuating currency valuation.
However, currency risk on debt not intended for repayment may receive what some perceive as "beneficial" treatment under some local GAAP financial accounting standards, where currency fluctuation is recorded directly in the balance sheet with no impact to profit.
As companies move to IFRS or IFRS for SMEs for statutory reporting purposes, some of these "benefits" may be lost with the increasing likelihood of foreign currency gains and losses being recognized in book and tax income. To better understand the potential tax issues that may result from this change, please read this article.