Forex Gain, Forex Loss - The PEZA Entity's Problems

According to the Court of Tax Appeals, in the case of Aegis Peoplesupport, Inc. versus Commissioner of Internal Revenue, it is ruled that PEZA-registered forex gain derived from an activity that is not registered or directly related to a registered activity of a PEZA-registered entity is not subject to the usual preferential tax rate being enjoyed by all PEZA-registered entities. It is learned that all the income/forex gain from the hedging of foreign-currency denominated funds is subject to regular income tax because it is not directly derived from a PEZA-registered activity while all the income/forex gain directly or incidental to a PEZA-registered activity must be taxed according to the tax being imposed thereon.

In other language, a forex gain is subject to 5% preferential tax rate or totally exempted from income tax provided that it is directly attributable to a PEZA-registered activity. In case that it is subject to 5% preferential tax rate, the forex loss derived from the same activity shall not be allowed as a deduction from such forex gain.

If the said forex gain is subject to regular income tax, the forex loss may be deducted therefrom in order to arrive at the true and correct taxable income.

To feel more confident in dealing with BIR-created problems, please feel free to attend the Tax Accounting Seminars for PEZA-registered entities. For details, please click 'TODAY'S IMPORTANT NEWS.'

RR 20-2002
PEZA MC 32-2005