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TAX & BUSINESS
Foreign‑currency loan exchange losses
The Administrative Court (VwGH) clarifies that losses from exchange‑rate fluctuations on a foreign‑currency loan taken out to finance a rented property cannot be claimed as tax‑deductible expenses.
Interest on loans can be deductible as either business expenses or income‑related expenses, depending on the context. However, exchange losses on foreign‑currency loans are not to be equated with loan interest. In the view of the VwGH, exchange‑rate developments arising from the currency movement of a foreign‑currency loan constitute income from speculative transactions. In one case, the one‑year speculation period had already expired. Consequently, only a change in the value of private assets occurred, so the exchange losses could not be claimed for tax purposes.
Furthermore, a direct economic link between the exchange losses and the rental income was denied. The exchange losses resulted solely from general market developments in the foreign‑exchange markets and had no direct connection to the income from the externally financed property. Therefore, exchange losses, unlike interest on borrowed capital, are not deductible.
Conclusion
While in a business context exchange losses on foreign‑currency loans are deductible, they cannot be claimed as income‑related expenses in a non‑business context, such as renting and leasing. In earlier cases, the VwGH has already denied the deductibility of option premiums used to hedge foreign‑currency loans or of exchange losses in connection with the disposal of rented properties in the non‑business sector.
Furthermore, a direct economic link between the exchange losses and the rental income was denied. The exchange losses resulted solely from general market developments in the foreign‑exchange markets and had no direct connection to the income from the externally financed property. Therefore, exchange losses, unlike interest on borrowed capital, are not deductible.
Conclusion
While in a business context exchange losses on foreign‑currency loans are deductible, they cannot be claimed as income‑related expenses in a non‑business context, such as renting and leasing. In earlier cases, the VwGH has already denied the deductibility of option premiums used to hedge foreign‑currency loans or of exchange losses in connection with the disposal of rented properties in the non‑business sector.