Ruling description

In its ruling handed down on 9 December 2015, in combined cases (case file no. III SA/Wa 293/15 and case file no. III SA/Wa 294/15), the Regional Administrative Court in Warsaw ("WSA") held that loan currency conversion does not generate any foreign exchange differences and is tax neutral.

The Company requested a tax ruling concerning corporate income tax. In its request, the company stated that it was a special purpose vehicle incorporated to implement a specific real estate development project. In connection with the project implementation, the company incurs various costs that are strictly related to the project. The investment is financed mainly with funds originating from external sources in the form of contracted loans. The said loans were contracted in foreign currency and were credited to the company's bank account denominated in foreign currency.

Subsequently, the funds so received were sold to the bank in exchange for Polish currency which is utilized by the company to make payments related to the investment completion and, to a minor extent, to finance the company's liabilities incurred in the company's day-to-day operations.

In its request for a tax ruling, the company sought confirmation that at the time of selling the foreign currency to the bank certain foreign exchange tax differences were generated on the company's part.

In the tax ruling handed down by the Head of the Fiscal Chamber in Warsaw, the authority found the company's position to be incorrect. It argued that foreign exchange differences are not established in view of the circumstances of receiving or acquiring funds and cash, but they are established in view of the circumstances of the outflow of funds and cash in the sense of the disposal thereof. An exchange operation, such as, for example, a currency conversion, does not result in the generation of foreign exchange differences on the entity's own cash. Only the exchange of assets takes place in such an event, such assets being still held by one and the same taxpayer.

The company challenged the ruling handed down by the authority and filed an appeal against it to the WSA. The Court upheld the authority's considerations and assessed that the situation in which the loan was contracted, and then converted from the original foreign currency to the domestic currency, does not generate any foreign exchange differences. In doing that, the Court expressed the view that the operation of the loan currency conversion is tax neutral.


The ruling handed down by the Court should be accepted and the arguments raised by the Court recognized as they are founded by the case-law of administrative courts and the clear-cut position taken by the tax authorities.

The key premise for the possible creation of foreign exchange tax differences is the satisfaction of the taxpayer's liability (by means of the repayment or set-off). As a matter of fact, the completion of a loan currency conversion does not result in the liability being satisfied. It only brings the exchange of currency in which the liability is denominated.

Since the loan currency conversion is to be deemed as tax neutral, then, as a consequence, when classifying foreign currency operations in tax terms, one should bear in mind the distinction made by the Court. Namely, foreign currency tax differences are to be distinguished from differences in foreign exchange rates that result from currency conversions, which do not have any impact on the amount of the taxpayer's revenues or costs. A failure to make such a distinction may result in negative tax consequences.

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