The determination of accounting profit is defined by the Accounting Act and the Decree on Accounting Principles. As reported in "New Decree on Accounting Principles Causes Controversy", the act was recently amended and a new Decree on Accounting Principles released.

Parliament amended the act on December 6 2002. If the Senate also passes the law, as is expected, this would indirectly allow taxpayers to choose between year-end unrealized exchange rate differences being tax neutral or tax relevant. However, this choice applies only for the 2002 tax year. All unrealized gains and losses must be treated uniformly.

Parliament's decision to amend the act is welcome news, particularly for enterprises that were financed by loans denominated in foreign currency which have accumulated huge currency gains as a consequence of the strong re-valuation of the Czech crown. Although the outlook for 2003 and beyond is uncertain, further changes are planned for both the act and the Tax Code.

For further information on this topic please contact Lucie VorlĂ­cková at Vorlickova & Partners by telephone (+420 2 33 111 100) or by fax (+420 2 33 111 133) or by email ([email protected]).