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Written by:
Herman Ruijter


Revision of Functional Currency Decree

The Tax and Customs Administration has the option upon the request of the relevant taxpayer to allow the latter – conditional on compliance with the terms as per the Functional Currency Regulations – to calculate its corporation tax dues in a currency other than the euro (or “functional currency”, this being the currency of the primary economic environment in which the entity in question operates). The Junior Finance Minister has revised the relevant policy decision on the topic of functional currency regulations accordingly by allowing the set-off of foreign withholding tax resulting in the need for translating the amount in foreign withholding tax into euros being dispensed with. Subject to approval this will release the taxpayer in question – without it having to file a petition to the relevant effect – from its obligation to convert its foreign withholding tax into euros by allowing it to stay with the relevant alternative (foreign) functional currency.

Two elements have been bolted on to the policy decision compared with the previous version. Any taxpayer which has been making use of the Functional Currency Regulations will no longer have to file a petition for (prolonged) application of said Regulations in the wake of it having adopted a different legal form, the mere fact that it was already relying on the Regulations while its original legal form prevailed having rendered its subsequent change in legal form surplus to requirements as far as the Regulations are concerned.

Application of the Functional Currency Regulations does nothing to change the mandatory payment in euros of the corporation tax dues. This may “contaminate” the outstanding amount in corporation tax with a currency gain or loss, which in principle is to be based on the formation of the tax debt in the course of the (financial) year in question. The Junior Finance Minister has consented to the calculation of the currency gain or loss forming part of the corporation tax debt being based on the formation thereof as at the relevant financial year end.

The revised policy decree has been in effect since 11 August 2020, which doubles as the repeal date of its predecessor.

Dutch version: Besluit functionele valuta aangepast

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