Exchange rate applied to corrective invoices
On 25 May 2022, the Supreme Administrative Court issued rulings in two cases with reference numbers: II FSK 2530/19 and II FSK 2531/19, which may alter the hitherto practice applied to translation into PLN of corrective invoices expressed in foreign currencies, documenting correction of income or tax-deductible costs.
Until now, a position generally approved by tax authorities was adopted and it assumed that the amounts in corrective invoices expressed in foreign currencies are translated into PLN according to a historical rate, i.e. a rate applied to an original invoice. This approach was adopted due to the fact that the CIT Act does not provide for a direct exchange rate to be applied for correction of income or tax-deductible costs. Therefore, it was assumed that the correction made by way of a corrective invoice is not a single event detached from the event generating income or a tax-deductible cost and it should be subject to the same rules as the original invoice.
In turn, a new approach presented in the afore-mentioned rulings is based on an assumption that the amounts in corrective invoices expressed in foreign currencies should be translated into PLN at a current exchange rate, i.e. at a rate applicable to a corrective invoice. According to this position, since the rules for recognizing the correction of income as well as tax-deductible costs in an appropriate settlement period are regulated by the CIT Act, the corresponding approach should be taken on with regard to an exchange rate applied to corrective invoices. If the correction of income or tax-deductible costs is to be treated on an on-going basis (except for accounting errors and other obvious errors), then, in the absence of a legislation on the exchange rate stating otherwise, a current exchange rate should be applied.
At present, it is hard to decide which of these two positions will prevail. However, taking into consideration the already entrenched interpretative practice of tax authorities, it is suggested that the hitherto approach be continued. On our end, the current position of tax authorities will be monitored and if it changes, a modification of Mazars approach will also be taken into consideration.
Since the interpretative discrepancy gives rise to a tax risk in situations when applying the historical exchange rate instead of the current rate could result in important discrepancies caused by recent high exchange rate fluctuations and the volume of corrected amounts, it is recommended to apply for an individual tax ruling in order to confirm which exchange rate should be adopted.
Should you be interested in Mazars support in this respect, please contact our Tax Advisory Department.
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