In a long-awaited decision, the French Conseil d'Etat (decision n°443914 of 13 September 2021) has clarified the rule of calculation of a capital gain or loss derived by a private individual on assets valued in a foreign currency. The Court considers that the exchange gain (or loss) is to be taken into account : one should convert the sale price into euros, the rate applicable on the day of the sale and convert the purchase price at the exchange rate applicable on the day of the acquisition.
According to the Conseil d’Etat, the exchange gain or loss is an element of the realized capital gain or loss. Although this position does not explicitly refer to any text of the French tax code, it ends the uncertainty generated by antagonist positions of French Courts of Appeal. The Court of Nancy chose to exclude the exchange gain or loss from the taxable gain, by converting in euros the net gain calculated in foreign currency, whereas the Court of Paris decided in favour of taking into account the exchange gain or loss.
The solution will not make everyone happy : this will be the case, for example, for people who would be taxable in France, when a neutral operation in foreign currency becomes positive in euro only because of the evolution of the exchange rate. On the opposite, the French tax administration may be disadvantaged when a foreign currency is devaluated. Legal security comes with a price...
