Capitalizations of foreign companies: exchange difference

In accounting matters, several changes were introduced by Law 1819 of 2016. Perhaps one of the most important was, as of taxable year 2017, to establish accounting under international financial reporting standards (Article 21-1 of the Tax Statute -ET-) as the tax basis for the determination of the calculation of income tax and complementary taxes, thus impacting the accounting and tax treatment of foreign currency transactions.

Based on such amendment, the accounting record of a capitalization in money from a foreign company to a Colombian company requires calculating the exchange difference generated by the comparison between the rate at the time of the initial recognition of the operation -which in line with the provisions of article 269 of the ET will correspond to the market representative rate -TRM- certified by the Financial Superintendence of Colombia for the day of the transaction-, and the rate negotiated with the Intermediary of the Exchange Market -IMC- at the time of the monetization of such resources.

In accordance with the provisions of Article 288 of the ET, since the foreign currency was monetized to Colombian pesos, the value recognized as exchange difference will be the tax basis for the calculation of income tax.

A different situation arises when the capitalization enters a compensation account, in which case the day to day movements of such resources must be controlled to determine whether the portion of the exchange difference is realized or not.

In the event that the foreign currency is kept immobile in the compensation account, only the balance at the end of each month must be updated with the TRM certified for that date, reason for which this exchange difference will be "unrealized" and, therefore, will not be a taxable basis for the calculation of the income tax and complementary taxes.

In this case, it must also be considered that the equity value to be declared in the taxpayer's income tax return will correspond to the value of the initial recognition of the operation, ignoring the adjustments that are made at the end of the month with the purpose of updating the foreign currency to Colombian pesos, since this corresponds only to compliance with the accounting standard in accordance with the provisions of Annex 2 of Decree 2420 of 2015.

It is important to highlight that this control must be handled as an annex to the income tax return, in order to identify the differences that must be reported at the time of making the tax reconciliation, since they will be the basis for the calculation of the deferred tax of the corresponding taxable period.