RMC No. 12-2024: Clarifies the treatment of foreign currency transactions for financial reporting and internal revenue tax purposes

Key points

1. Differences from PFRS. Unrealized forex gains or losses on monetary assets and liabilities are recognized in profit or loss and create a temporary difference needing deferred tax accounting. Unrealized gains or losses on non-monetary items carried at fair value are not considered in taxable income.
2. Realized forex. Forex gains or losses from closed and completed transactions count as taxable income or deductible expense for income tax.
3. Spot rate and consistency. Transactions are converted at the spot rate on the transaction date. The taxpayer picks the spot rate type (open, close, high, low, weighted average and so on) at the start of the taxable year and uses it consistently for books and tax for at least one taxable year.
4. Standard rates. The spot rate is the Banker’s Association of the Philippines (BAP) published rate. If that is impractical, other rates such as BSP, Bloomberg or Reuters may be used with a notarized sworn statement filed with the RDO, LTDO or LTS within 30 days prior to the start of the taxable year.
5. Non-USD currencies. BAP publishes USD/PhP rates only. USD transactions use BAP rates, and transactions in other currencies use BSP rates, with a summary of the transactions kept for audit.
6. Penalties. Taxpayers must prove the reliability of the rates used. Section 255 administrative penalties apply to first and second offenses, and later offenses are treated as willful failure and not subject to compromise.

Who is affected

• Taxpayers with foreign currency transactions

Deadlines and effectivity

• Sworn statement within 30 days prior to the start of the taxable year
• Election of rates used for at least one taxable year