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Taxing FX of Branches: the new Section 987 regulations

Cross-border Tax Talks

NOTE

Introduction and Overview of Code Section 987

Code Section 987, which deals with branch foreign currency rules, was introduced in 1986 to harmonize the treatment of foreign currency items for tax purposes. It requires accounting for translational gains or losses between a branch's functional currency and the taxpayer's home currency. The section mandates translation of income, deductions, gains, or losses at an average yearly rate, along with adjustments for branch transactions. The timing for accounting for these gains or losses is during remittances from the branch. Despite being only three sentences long, the section has led to extensive regulatory interpretations, spanning hundreds of pages.

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