09 August 2016 Hyperinflationary list for 2015 available The Section 985 regulations require entities operating in countries with a hyperinflationary currency to use the US dollar as their functional currency and to apply the dollar approximate separate transactions method of accounting (DASTM). For tax years beginning after August 24, 1994, a qualified business unit (QBU) of a taxpayer operating in a hyperinflationary environment generally must use the US dollar as its functional currency and apply DASTM to calculate the US taxable income and earnings and profits. For tax years beginning on or before August 24, 1994, taxpayers have the option to elect DASTM in any open tax year beginning after 1986. Once elected, however, DASTM must be applied to all related QBUs operating in hyperinflationary countries. An election to use a dollar functional currency is not permitted for a QBU other than an eligible QBU, as defined in Treasury Regulation Section 1.985-2(b). A currency is hyperinflationary if the country has experienced cumulative inflation during the three preceding years of at least 100%. A list of hyperinflationary countries from 2011 to 2015 is attached. A QBU operating in a country that is designated as "hyper" on the attached chart should apply DASTM and use the US dollar as its functional currency for that particular year. However, there are several issues concerning the methodology taxpayers could use to determine if a country's currency is hyperinflationary. Using a different methodology could lead to a different result. Therefore, this list should be used only as a guide. For years beginning after April 6, 1998, a QBU that operates in a country where the local currency ceases to be hyperinflationary, and that has been applying DASTM and using the US dollar as its functional currency, must adopt the profit and loss method of accounting and also the local currency as its functional currency. A currency is no longer considered hyperinflationary for this purpose if it fails the 100% cumulative inflation test described above for three consecutive years. When this occurs, the regulations provide automatic consent to change to the profit and loss method of accounting and to adopt the local currency as the functional currency as of the first day of the first tax year following the three years in which the currency is not hyperinflationary. The base period inflation values represent the change in the consumer price index (CPI) over the prior year, as reported in the monthly issues of International Financial Statistics published by the International Monetary Fund (IMF) as required by Treasury Regulation Section 1.985-1(b)(2)(ii)(D). The countries shown in the list are those for which the IMF provides CPI information. In most cases, the determinations are based on the December-to-December percentage change in the CPI for the three preceding calendar years. For certain countries for which December CPI information is incomplete or unavailable in the IMF publication, the determination is based on CPI information for the most recent month or quarter of that year. There are several variations of this computation that taxpayers may apply in their methodology to determine if a country's currency is hyperinflationary. Using a different methodology could lead to a different result. Iran, South Sudan, Sudan and Venezuela continue to be hyperinflationary for 2015 as they were in 2014. Malawi is new to the list in 2015. Zimbabwe was removed from the 2015 list as it completed its process of phasing out its local currency and now uses the US dollar. Finally, several countries have not reported any data for the year 2015 as of August 2016 (i.e., Argentina, Belarus, Congo, Djibouti, Gambia, Liberia, Libya, Netherlands Antilles, Syria and Yemen) and no determination has been indicated for these countries.
Document ID: 2016-1367 | |||||||||
