We will take an example to understand the implications of functional currency on deferred tax. 1. Entity A has INR as Tax Currency and USD as functional Currency. 2. The values of non monetary assets as maintained for tax books in INR is Rs 3,150 and as maintained with USD as functional currency stood at $77.73.
http://www.caclubindia.com/articles/functional-currency-s-consequential-impact-on-deferred-tax-14762.asp
Market – The functional currency is the foreign currency when the foreign activity has a strong local sales market for products or services even though a significant amount of exports may exist. The functional currency is the parent’s currency when the foreign operation’s sales market is mostly in the parent’s country. Cash flow – The functional currency is the foreign currency when the foreign operation’s cash flows are predominately in foreign currency not directly impacting the parent’s cash flow. The functional currency is the parent’s currency when the foreign operation’s cash flows affect the parent’s cash flows.
http://accounting-financial-tax.com/2008/10/how-to-determine-the-functional-currency/
While comparing the balance sheet values and tax base, the following paragraph brings out the impact of functional currency on deferred tax computation. “The non-monetary assets and liabilities of an entity are measured in its functional currency (see Ind AS 21 The Effects of Changes in Foreign Exchange Rates).
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Businesses may enter into transactions (sales, payments, etc.) in multiple currencies. Each qualified business unit (QBU) of the business translates these items to its functional currency at an appropriate exchange rate.
https://en.wikipedia.org/wiki/Functional_currency
The consequential impact of Functional Currency on Deferred taxes, is not part of the carve outs and hence would need due care while the standard is practically implemented in India. Ind AS 12: Income Taxes. A deferred tax asset or liability shall be recognised for all taxable temporary differences.
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Transactions are often translated at the spot rate, i.e., the rate of exchange between the transaction currency and the functional currency on the date of the transaction. Example: Jim is traveling on business and pays a hotel bill for SFR 200.
https://en.wikipedia.org/wiki/Functional_currency
Since the functional currency is US$ and the carrying value in functional currency is at the historic rate, to compare with the tax base it is converted at the current rate exchange closing. This will give rise to a temporary difference even though notional.
http://www.caclubindia.com/articles/functional-currency-s-consequential-impact-on-deferred-tax-14762.asp
A “functional currency is defined as a qualifying currency, which for now includes only the US dollar, the pound sterling, the euro and the Australian dollar (the latter added by the revisions announced in June, 2008). The Department of Finance has the scope to add more qualifying currencies in the future.
http://www.grantthornton.ca/resources/insights/articles/Tax%20client%20releases/Should%20your%20company%20elect%20under%20the%20new%20Functional%20Currency%20Rules.pdf
The functional currency rules were first introduced in the May 2, 2006 federal budget and received Royal Assent on December 14, 2007. Under these rules, eligible corporations can elect to report their Canadian tax results using a functional currency other than the Canadian dollar. In June, 2008, the government proposed a number of significant technical revisions to the rules, including. Audit • Tax • Advisory © Grant Thornton LLP.
http://www.grantthornton.ca/resources/insights/articles/Tax%20client%20releases/Should%20your%20company%20elect%20under%20the%20new%20Functional%20Currency%20Rules.pdf
From Wikipedia, the free encyclopedia. Functional currency refers to the main currency used by a business or unit of a business. It is the monetary unit of account of the principal economic environment in which an economic entity operates. International Accounting Standards (IAS) and U.S. Generally Accepted Accounting Principles (GAAP) provide rules for translation of foreign currency transactions and financial statements.
https://en.wikipedia.org/wiki/Functional_currency
definition of functional currency us tax
The definition of functional currency is a main currency used by a business or unit of a business in US. The functional currency US tax is the main currency used by a business or unit of a business.