Tax declaration of foreign securities - exchange rate

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Vieira
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Joined: Sun Apr 24, 2022 5:12 pm

Tax declaration of foreign securities - exchange rate

Post by Vieira » Sun Apr 24, 2022 6:12 pm

Hi everyone.

I'd like to make sure I'm doing the math right on this one.
The issue arises when declaring a sale of a security that was made in a different year from its purchase.

Example:

03/06/2021 - Move 100 EUR to foreign broker. 125 USD arrive at the broker (1.25 EUR/USD exchange rate used by broker).
03/06/2021 - Buy 3 units of StockX for 125 USD.
...
14/03/2022 - Sell 3 units of StockX for 125 USD. (Taxable event)
15/03/2022 - Buy 4.5 units of StockYY for 125 USD.

In this example the purchase and sale was carried out in USD but the money was used to buy other stocks in the same broker one day after. I.e. not converted to EUR.

To declare the sale at the end of 2022 values need to be converted from USD to EUR. According to Vero we should use the values declared by the Bank of Finland for the average exchange rate for each year. For the sake of simplicity, let's say EUR to USD conversion rates were:
2021: 1.20 EUR/USD
2022: 1.10 EUR/USD

Tax declaration for StockX should then look like:
- Date of sale: 14/03/2022
- Cost of sale: 113.64 EUR (Use 1.10 EUR/USD as conversion rate)
- Date of purchase: 03/06/2021
- Cost of purchase: 104.17 EUR (Use 1.20 EUR/USD as conversion rate)
- Taxable profit: 9.47 EUR

Using this method, the exchange rate leads to a perceived profit of 9.47 EUR which is subject to tax, even though I sold for the same value that I purchased. Is this calculation correct? It seems a bit counter intuitive, as I sold for the same value.



Tax declaration of foreign securities - exchange rate

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agroot
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Re: Tax declaration of foreign securities - exchange rate

Post by agroot » Sun Apr 24, 2022 11:38 pm

Yes I was told by vero explicitly this is the case.

Although, I recall in the form on website where capital gain tax is filled, it stats you could use the rate at selling or the rate at buying for calculation - I didn't ask them how this could work.

Vieira
Posts: 5
Joined: Sun Apr 24, 2022 5:12 pm

Re: Tax declaration of foreign securities - exchange rate

Post by Vieira » Mon Apr 25, 2022 5:35 pm

Thanks for the answer. In some sense it seems correct to me. If I withdrew back to EUR and shortly later wanted to buy StockYY I would have to convert back to USD. Alternatively, I could buy StockYY in an EUR exchange at its corresponding EUR value. Either way, the gain is due to holding an USD based asset while USD gained value to EUR.

If it is possible to choose which rate to use, maybe it could optimize tax declarations. At some point I should really talk to an accountant.

It also seems that there are some weird cases, like dealing always in USD throughout many years, maybe even deals that weren't made for profit. But because Vero taxes in EUR it would produce gains and losses related to USD/EUR value fluctuations.

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agroot
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Joined: Sat Dec 22, 2018 5:04 pm

Re: Tax declaration of foreign securities - exchange rate

Post by agroot » Mon Apr 25, 2022 7:25 pm

Vieira wrote:
Mon Apr 25, 2022 5:35 pm
At some point I should really talk to an accountant.
You can message them on vero website after logged in. They always answer.


And yes for multi-year it'd tax loss, if bought before euro dropped like crazy.

betelgeuse
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Joined: Thu Aug 29, 2013 1:24 am

Re: Tax declaration of foreign securities - exchange rate

Post by betelgeuse » Mon May 02, 2022 2:42 pm

Vieira wrote:
Sun Apr 24, 2022 6:12 pm
To declare the sale at the end of 2022 values need to be converted from USD to EUR. According to Vero we should use the values declared by the Bank of Finland for the average exchange rate for each year.
The page you quoted has no such guidance. The page on capital gains says to use the daily exchange rate from the ECB.

"Jos omaisuuden hankintahinta on suoritettu muussa valuutassa kuin euroina, hankintahinta muunnetaan euroiksi muun selvityksen puuttuessa hankintahinnan suorituspäivän Euroopan keskuspankin virallisella vaihtokurssilla. Vastaavasti jos luovutushinta on saatu muussa valuutassa kuin euroina, luovutushinta muunnetaan euroiksi muun selvityksen puuttuessa luovutushinnan saantipäivän Euroopan keskuspankin virallisella vaihtokurssilla."

https://www.vero.fi/syventavat-vero-ohj ... otuksessa/

Vieira
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Joined: Sun Apr 24, 2022 5:12 pm

Re: Tax declaration of foreign securities - exchange rate

Post by Vieira » Mon Feb 20, 2023 2:30 pm

betelgeuse wrote:
Mon May 02, 2022 2:42 pm
Vieira wrote:
Sun Apr 24, 2022 6:12 pm
To declare the sale at the end of 2022 values need to be converted from USD to EUR. According to Vero we should use the values declared by the Bank of Finland for the average exchange rate for each year.
The page you quoted has no such guidance. The page on capital gains says to use the daily exchange rate from the ECB.

"Jos omaisuuden hankintahinta on suoritettu muussa valuutassa kuin euroina, hankintahinta muunnetaan euroiksi muun selvityksen puuttuessa hankintahinnan suorituspäivän Euroopan keskuspankin virallisella vaihtokurssilla. Vastaavasti jos luovutushinta on saatu muussa valuutassa kuin euroina, luovutushinta muunnetaan euroiksi muun selvityksen puuttuessa luovutushinnan saantipäivän Euroopan keskuspankin virallisella vaihtokurssilla."

https://www.vero.fi/syventavat-vero-ohj ... otuksessa/
As I'm preparing for this year's tax declaration, I noticed betelgeuse's comment. I had read this statement here:

"Report the income in euros and cents. If the income was paid in a currency other than euros, convert the income and income taxes (if any) into euros using the exchange rate for the transaction date. You can also use the average exchange rate published by the ECB.

Check the average exchange rate for the tax year (availabe in Finnish and Swedish, link to Finnish).

For capital gains and losses, you must use the exchange rate that was in force at the time of the transaction."


So the statement is clear but could be misread, as the first part says a different thing.

To really make sure I called vero for the third time now to ask this: When declaring transactions of stocks, virtual currencies and divedends in foreign currencies should I use the average yearly CEB exchange rate or the rate in effect at the time of the transaction? And is there any difference between those types of assets. She said very confidently that I can choose, that most people use the average yearly rate, but if I know the time of the transaction well I can use the rate in effect at that time.

I will start using the rate in effect at the time, as it fits more correctly with the website's instructions and is easy to do.


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