Revenue Memorandum Circular (RMC) No. 12-2024

RMC No. 12-2024, which was issued on 22 January 2024, intends to clarify the treatment of foreign currency transactions for financial reporting and internal revenue tax purposes.

The Circular excludes banks and other financial institutions and those using functional currencies other than Philippine peso.

Below is the summary of the current treatment of forex gain/loss per PFRS and per tax purposes, which is also sourced from the published circular:

Particulars	PFRS	Current Tax Treatment
Initial measurement of foreign currency transactions	All foreign currency transactions are recorded in the entity’s functional currency using the spot rate of exchange at transaction date	Foreign currency transactions are translated into Philippine Peso using the prevailing interbank reference rate on the date of transaction. This is the basis of the reportable transactions for taxes other than Income Tax (e.g., VAT, GRT, OPT, Excise, DST, etc.)
Unrealized gain or loss on remeasurement of monetary assets and liabilities denominated in foreign currency	Recognized in profit or loss.	Results to a temporary difference for which deferred tax accounting should be applied to reconcile accounting net income to taxable net income.
Unrealized gain or loss on remeasurement of non-monetary items carried at fair value currency transaction	Recognized in profit or loss or OCI depending on the treatment of the changes in the fair value of the item itself.	Not considered in the determination of the taxable income.
Realized gain or loss on settlement of a foreign currency transaction	Recognized in profit or loss.	Forex gains/losses arising from closed and completed transactions are considered as taxable income or deductible expense for Income Tax purposes.

The following are the notable provisions:

I. Exchange rate at the time of transaction

• The spot rate on the date of the transaction shall be used. The taxpayer has the preference to adopt which spot rate to be used (e.g. open, close, high, low, weighted, average, etc.) at the beginning of the taxable year as long as the spot rates adopted must be used consistently both in recording for financial accounting purposes and reporting for tax purposes for at least one taxable year.
• However, the use of monthly average exchange rates is not permitted in converting foreign currency transactions to Philippine Peso (PHP) for tax purposes.

II. Use of BAP rate

• To standardize the forex rates to be used for tax purposes, the BIR prescribes the use of the spot rate of exchange on the day of the transaction based on the Banker’s Association of the Philippines (BAP) published rates.
• However, in the event that the BAP forex rate is impractical or not feasible, the spot rate on the day of the transaction based on other available exchange rates (e.g., Bangko Sentral ng Pilipinas (BSP), Bloomberg, Reuters exchange rates, etc.) shall be used subject to the following conditions:
  • Submission of a notarized sworn statement stating the source of the forex rates to be used, the reason for using such forex rates other than BAP published rates, and a statement allowing the BIR to have access to the day-to-day forex rates used during the BIR audit for the taxable year, within 30 days prior to the start of the taxable year.
  • The source of forex rates used in converting foreign currency-denominated transactions, such as the URL/source where the forex rates are published or listed or a summary of the day-to-day exchange rates used for the taxable year must be available for presentation and submission, together with other supporting documents during BIR audit.
• Election of forex rates are irrevocable and must be used consistently both in recording for financial accounting purposes and reporting for tax purposes for at least one taxable year.
• The taxpayer shall use the actual forex rates as published or listed based on the reference exchange rates. However, if the taxpayer’s accounting system is not capable of adopting the exact number of decimal places, the taxpayer may use the maximum number of decimal places as designed in their respective system subject to written notification to the BIR office having jurisdiction over the taxpayer.
• However, given the BAP publishes USD/PHP spot rates only, taxpayers with foreign currency transactions other than USD are allowed to directly convert foreign currency other than USD to PHP using the forex rates other than BAP following the above conditions.
• If the taxpayer incurred foreign currency-denominated transactions other than USD in the middle of the taxable year but initially elected to use BAP published rates, the taxpayer is allowed to use the BSP spot rates for foreign currency transactions other than USD subject to the following conditions:
  • The taxpayer shall summarize its foreign currency transactions other than USD with the following information: (a) Date of transaction; (b) Amount of foreign currency transactions other than USD; (c) Nature of transaction; (d) Forex rate used in converting to PHP; and (e) PHP converted amount of the foreign currency transaction.
  • Such information must be available for presentation and submission, together with other supporting documents during the BIR audit.

III. Presentation of forex gain or loss in the ITR

• The practice of offsetting forex gains and losses is not allowed for income tax purposes. The gross amounts of gain and loss must be presented in the income tax return.  However, for tax calculation purposes, forex loss is still allowed as a deduction following the rules on income tax deductibility.
• In this regard, forex gains shall be presented as part of “Other Taxable Income” and be included in the computation of “Total Taxable Income” or “Gross Taxable Income” in the income tax return. On the other hand, forex losses shall be presented as part of “Ordinary Allowable Itemized Deductions” in the income tax return.   

IV. Reporting of other taxes denominated in foreign currency

• Foreign currency transactions are converted into Philippine Peso using the prevailing spot rate on the date of transaction. This is the basis of the reportable transactions for taxes other than income tax (e.g. VAT, GRT, OPT, Excise, DST, etc.)

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