Costa Rica: Tax treatment of exchange rate differential

Court finds tax administration’s currency exchange rules failed procedural requirements

Court finds tax administration’s currency exchange rules failed procedural requirements

A court held that guidance from the tax administration (DGT-CI-04-2020) regarding the tax treatment of an exchange rate differential failed to satisfy certain procedural requirements and therefore was invalid.

The tax administration’s guidance generally provides that an exchange rate differential is only taxable (or deductible) when realized, excluding the application of an accrued exchange rate differential for tax purposes.

The guidance was rejected by the court on procedural grounds (the guidance having not been published for consultation before it was implemented). 

KPMG observation

The judgment of the court does not address the substance of the tax administration’s guidance—that is whether the guidance aligns with the income tax law. In response to this decision, the government could appeal or the tax administration could issue new guidance that complies with the consultation requirements. The tax administration has not indicated what it will do next. In the meantime, potentially affected taxpayers need to examine their situations to identify what effect this could have on the tax treatment of their transactions or business operations when denominated in foreign currency.

Read a May 2021 report (Spanish) [PDF 208 KB] prepared by the KPMG member firm in Costa Rica



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