31 Jan 2024
Please be informed that RMC No. 12-2024 was issued to clarify the differences between the foreign exchange (forex) gains/losses recognized in the financial statements prepared under the Philippine Financial Reporting Standards (PFRS)/Philippine Accounting Standards (PAS) and the forex gains/losses as income or allowable deduction for income tax purposes pursuant to the provisions under Sections 32 and 34 (D) of the National Internal Revenue Code (NIRC) of 1997, as amended, Sec. 96 of Revenue Regulations (RR) No. 02-40, RR No. 06-2006, and other related revenue issuances. This was also issued to clarify and prescribe the guidelines on the use of appropriate forex rates in recording and reporting foreign currency transactions for tax purposes.
The overview of the PFRS and tax treatment of this matter is presented in the table below.
Particulars |
PFRS |
Current Tax Treatment |
Initial measurement of foreign currency transactions |
All foreign currency transactions are recorded in the entity's functional currency using the spot rate of exchange at transaction date. |
Foreign currency transactions are translated into Philippine Peso using the prevailing interbank reference rate on the date of transaction. This is the basis of the reportable transactions for taxes other than income tax (e.g ., VAT, GRT, OPT, Excise, DST, etc.) |
Unrealized gain or loss on remeasurement of monetary assets and liabilities denominated in foreign currency |
Recognized in profit or loss. |
Results to a temporary difference for which deferred tax accounting should be applied to reconcile accounting net income to taxable net income. |
Unrealized gain or loss on remeasurement of non-monetary items carried at fair value currency transaction |
Recognized in profit or loss or OCI depending on the treatment of the changes in the fair value of the item itself. |
Not considered in the determination of the taxable income. |
Realized gain or loss on settlement of a foreign currency transaction |
Recognized in profit or loss. |
Forex gains/losses arising from closed and completed transactions are considered as taxable income or deductible expense for income tax purposes. |
The RMC also discussed the accounting treatment under PAS 21 of foreign currency transactions (i.e., initial measurement, subsequent measurement, and settlement). Meanwhile, the following are the salients points of the tax treatment laid down in this RMC for various foreign currency transactions:
You may access the full version of this issuance through the BIR website.
For any inquiry or request for assistance, please feel free to contact anyone from our Tax Services group. You may also reach us through this link.