Calculation of the taxable profit of a limited liability company keeping its accounts in US dollars

Facts

X. Ltd, headquartered in Geneva, was subject to an ex officio taxation procedure regarding the federal direct tax (FDT) for the years 2001 and 2002. As X. Ltd kept its accounts in US dollars, its financial statements had to be converted to Swiss francs at the end of the year. In 2001, the "translation of monetary balance sheet items" item showed a gain of 4,709,227 CHF, while in 2002, the same item showed a loss of 24,956,670 CHF.

The Cantonal Tax Administration took into account the 2001 gain in the taxable profit, but did not deduct the 2002 loss. X. Ltd contested this decision, arguing that the translation differences, whether positive or negative, should be taken into account in the calculation of the net taxable profit.

Considerations

The Federal Tribunal dismissed X. Ltd's appeal. It considered that the translation differences resulting from the conversion of the functional currency (US dollars) to the presentation currency (Swiss francs) do not constitute actual business transactions and therefore do not affect the company's actual taxable capacity. Consequently, the tax authorities were entitled not to take these translation differences into account in the calculation of the net taxable profit.

The Federal Tribunal noted that Swiss accounting law does not contain specific provisions on the accounting of translation differences. However, the international accounting standards (IFRS)…