Tax treatment of exchange rate differences: what changes starting with the 2024 financial statements

published on 13 February 2025 | reading time approx. 3 minutes

The enactment of Legislative Decree 192/2024 introduced a significant change in relation to the tax treatment of exchange rate differences through the repeal of paragraph 3 of Article 110 of the TUIR.

Paragraph 3 of Article 110 of the TUIR stipulated that exchange rate differences resulting from year-end valuation were not relevant for tax purposes. Therefore, changes due to the conversion of foreign currency receivables and payables at the year-end exchange rate were recorded for accounting purposes, but did not affect the taxable base for income tax purposes.

The repeal of this paragraph, provided for by Legislative Decree 192/2024, established the elimination of the civil-tax dual track for the conversion of receivables and payables in foreign currency at the year-end exchange rate. This provision applies as early as fiscal year 2024.

As a result, exchange rate differences are relevant for tax purposes in the fiscal year in which they are accounted for. Companies will have to consider all exchange rate changes recorded in the financial statements at the end of the year as taxable or deductible, without any deferral of their fiscal impact, regardless of whether these exchange rate differences are realized or from valuation.

To sum up, from 2024, the accounting and tax valuation of exchange rate differences will be perfectly aligned.

A further aspect to consider, in light of the novelty introduced by Legislative Decree 192/2024, is the treatment of exchange rate differences already accounted for in previous years but not yet realized. In this regard, there is no transitional period to extend the statutory-fiscal dual track beyond December 31, 2023. Changes made up to the close of 2023 will become immediately relevant for tax purposes in 2024.

In addition to the tax effects, the change introduced by Legislative Decree No. 192/2024 also has important accounting consequences. It will no longer be necessary to allocate deferred tax assets or liabilities for valuation exchange differences. Moreover, as mentioned above, deferred tax assets or liabilities already set aside on foreign currency monetary items as of December 31, 2023 will be reabsorbed in 2024. Companies will no longer have to worry about separate tax management of exchange rate differences, as these will be treated directly based on accounting valuations.

In conclusion, this reform brings about a significant streamlining of accounting and tax compliance, eliminating complications and ensuring greater alignment between financial statements and tax returns.

The reform, in fact, aims to make the tax system more transparent and efficient by ensuring that the accounting valuation of exchange rate differences is also immediately reflected in the tax system, with no more need for ex-post adjustments or corrections.

The authors:

Luca Pagani - Senior Associate

Carola Viola Carpanelli - Intern

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