Since 2023, Swiss companies have had the option to prepare their statutory accounts and tax returns in a foreign currency instead of Swiss francs (CHF). While this may seem like a simplification, the choice between filing in a foreign currency or CHF can significantly impact a company's deferred tax position, complicate tax loss tracking, and even affect the effective tax rate under Pillar Two. This complexity arises because the taxable profit must still be reported in CHF, leading to potential distortions in tax accounting.
Deloitte's analysis highlights two key scenarios: companies filing in a foreign currency and those filing in CHF. When filing in a foreign currency, unrealized FX losses are recognized, while unrealized FX gains are deferred. Realized FX losses are tax-deductible, and realized gains are taxable. Tax losses are tracked in the currency of the tax return, which can lead to counter-intuitive results when converting between currencies.
For companies filing in CHF, two conversion methods are available: the modified current/noncurrent method and the modified closing rate method. Currency translation adjustments (CTA) are recorded in the income statement but excluded from taxable profit. The tracking of tax losses in CHF can produce unexpected outcomes, such as retaining tax losses due to currency strengthening. Deferred tax assets (DTA) on tax losses are also affected by FX fluctuations, impacting the deferred tax expense.
The choice of currency can also influence a company's Pillar Two position. Recomputing FX gains and losses during conversion can create asymmetric FX gains or losses, which must be adjusted for determining GloBe income. This underscores the importance of carefully considering the currency choice for tax accounting purposes.