In its judgment 4 Afs 170/2021-35 of 14 February 2022, the Supreme Administrative Court (SAC) confirmed that no exchange rate difference is accounted for in respect to an advance paid in a foreign currency for the acquisition of non-current tangible assets. The core of the dispute was that the tax administrator assessed corporate income tax for the taxpayer because the taxpayer failed to revalue the foreign currency advance for the acquisition of non-current assets and failed to report the exchange rate difference.
 
The SAC states that the obligation to revalue certain foreign currency assets and liabilities at the balance sheet date is based on the principle of exchange rate risk, to which the accounting entity is exposed. An accounting entity is exposed to foreign exchange risk when accounting for a transaction involves a monetary payment in foreign currency in the future. Therefore, revaluation at the current exchange rate makes sense only for those items, for which the exchange rate development has an impact on their future value. This is not the case for advances for the acquisition of non-current assets. The essence of the advance is to pay part of the price of the non-current asset before it is delivered. It is thus essentially a separate sub-part of the total price of the property. The SAC refers to and quotes the conclusions of the National Accounting Council from Interpretation I – 43 Advance Payments Provided in Foreign Currency, which deals with this topic.
 
The SAC further states that the exception, where an exchange rate difference would possibly be accounted for, is in individual cases, where there is a risk that the advance will be returned and the property will not be delivered. Then, according to the SAC, the advances must be accounted for as foreign currency receivables due to the existence of exchange rate risk.
 
According to the SAC, in the case of an advance payment for the acquisition of tangible non-current assets, it is therefore in compliance with the interest in a fair image of the accounting that exchange rate differences should not be calculated on this advance payment, except as stated above.
 
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