Gains from the sale of shares in foreign currency must be calculated in that currency

Managing investments in international markets brings additional complexity: currency fluctuation. An error in the methodology for calculating capital gains or losses can lead to an incorrect settlement of Personal Income Tax (IRPF).

What the DGT has ruled

Through a binding ruling, the Dirección General de Tributos (DGT) has specified the procedure for determining the result of the transfer of shares denominated in a currency other than the euro. The criterion establishes that the calculation of the capital gain or loss must be carried out, in the first instance, in the currency in which the shares are denominated.

Once said result is obtained in the original currency, the resulting difference must be converted into euros by applying the exchange rate in force on the date the change in assets occurs. Likewise, the tax authority clarifies that if, following the sale of the securities, foreign currency is received instead of euros, the exchange rate difference will not be imputed in the tax return until the actual exchange of those currencies into euros is carried out.

What this means for you

If you trade securities denominated in dollars or other currencies, you should not perform a direct conversion of the purchase and sale prices into euros to obtain the profit. The process requires an intermediate step of calculation in the foreign currency to determine the real result of the transaction in that currency before its final conversion.

This criterion clearly distinguishes between the result of the transfer of the asset and the result from the exchange rate difference. The exchange rate difference will only have tax effects at the moment the taxpayer effectively converts the obtained foreign currency into euros.

What you should do

To ensure compliance with IRPF regulations, it is necessary to:

• Calculate the result of the transaction using the currency in which the shares are denominated.
• Apply the official exchange rate from the date of the transaction for the conversion to euros.
• Defer the imputation of the exchange rate difference until the actual exchange of foreign currency into euros occurs.
• Maintain a detailed record of the exchange rates applied in each transaction to avoid discrepancies with the Administration.