11 August 2016
International Tax Alert
US hyperinflationary
list for 2015 available
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The US Internal Revenue Code1 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).
General Rule
For tax years beginning after 24 August 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
24 August 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).
Adopting DASTM
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 provided in the Appendix. A
QBU operating in a country that is designated as “hyper” on the attached chart
2
International Tax Alert
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.
Adopting local functional currency
For years beginning after 6 April 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.
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.
Methodology for determining
hyperinflationary status
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
Endnote
1. All “Section” references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder.
International Tax Alert
Appendix
Hyperinflationary List for 2015
Legend
•Hyperinflationary currency: Hyper
•Non-hyperinflationary currency: No
•Insufficient data for calculation: ?
Country
2011
2012
2013
2014
2015
Afghanistan
No
No
No
No
No
Albania
No
No
No
No
No
Algeria
No
No
No
No
No
Angola
No
No
No
No
No
Antigua and Barbuda
No
No
No
No
No
Argentina
No
No
No
No
?
Armenia
No
No
No
No
No
Aruba
No
No
No
No
No
Australia
No
No
No
No
No
Austria
No
No
No
No
No
Azerbaijan
No
No
No
No
No
Bahamas, The
No
No
No
No
No
Bahrain
No
No
No
No
No
Bangladesh
No
No
No
No
No
Barbados
No
No
No
No
No
Belarus
No
No
Hyper
Hyper
?
Belgium
No
No
No
No
No
Belize
No
No
No
No
No
Benin
No
No
No
No
No
Bhutan
No
No
No
No
No
Bolivia
No
No
No
No
No
Bosnia and Herzegovina
No
No
No
No
No
Botswana
No
No
No
No
No
Brazil
No
No
No
No
No
Brunei
No
No
No
No
No
Bulgaria
No
No
No
No
No
Burkina Faso
No
No
No
No
No
Burundi
No
No
No
No
No
Cambodia
No
No
No
No
No
Cameroon
No
No
No
No
No
Canada
No
No
No
No
No
3
4
International Tax Alert
Country (continued)
2011
2012
2013
2014
2015
Cabo Verde
No
No
No
No
No
Central African Republic
No
No
No
No
No
Chad
No
No
No
No
No
Chile
?
?
No
No
No
China (Hong Kong)
No
No
No
No
No
China (Macao)
No
No
No
No
No
China (Mainland)
No
No
No
No
No
Colombia
No
No
No
No
No
Congo, Democratic
Republic of
No
No
No
No
?
Congo, Republic of
No
No
No
No
?
Costa Rica
No
No
No
No
No
Côte d'Ivoire
No
No
No
No
No
Croatia
No
No
No
No
No
Cyprus
No
No
No
No
No
Czech Republic
No
No
No
No
No
Denmark
No
No
No
No
No
Djibouti
No
No
No
No
?
Dominica
No
No
No
No
No
Dominican Republic
No
No
No
No
No
Ecuador
No
No
No
No
No
Egypt
No
No
No
No
No
El Salvador
No
No
No
No
No
Equatorial Guinea
No
No
No
No
No
Estonia
No
No
No
No
No
Ethiopia
No
No
No
No
No
Fiji
No
No
No
No
No
Finland
No
No
No
No
No
France
No
No
No
No
No
Gabon
No
No
No
No
No
Gambia, The
No
No
No
No
?
Georgia
No
No
No
No
No
Germany
No
No
No
No
No
Ghana
No
No
No
No
No
Greece
No
No
No
No
No
Grenada
No
No
No
No
No
Guatemala
No
No
No
No
No
Guinea
No
No
No
No
No
International Tax Alert
Country (continued)
2011
2012
2013
2014
2015
Guinea-Bissau
No
No
No
No
No
Guyana
No
No
No
No
No
Haiti
No
No
No
No
No
Honduras
No
No
No
No
No
Hungary
No
No
No
No
No
Iceland
No
No
No
No
No
India
No
No
No
No
No
Indonesia
No
No
No
No
No
Iran
No
No
No
Hyper
Hyper
Iraq
No
No
No
No
No
Ireland
No
No
No
No
No
Israel
No
No
No
No
No
Italy
No
No
No
No
No
Jamaica
No
No
No
No
No
Japan
No
No
No
No
No
Jordan
No
No
No
No
No
Kazakhstan
No
No
No
No
No
Kenya
No
No
No
No
No
Korea, South
No
No
No
No
No
Kosovo
No
No
No
No
No
Kuwait
No
No
No
No
No
Kyrgyzstan
No
No
No
No
No
Laos
No
No
No
No
No
Latvia
No
No
No
No
No
Lebanon
?
?
?
?
No
Lesotho
No
No
No
No
No
Liberia
No
No
No
No
?
Libya
No
No
No
?
?
Lithuania
No
No
No
No
No
Luxembourg
No
No
No
No
No
Macedonia
No
No
No
No
No
Madagascar
No
No
No
No
No
Malawi
No
No
No
No
Hyper
Malaysia
No
No
No
No
No
Maldives
No
No
No
No
No
Mali
No
No
No
No
No
Malta
No
No
No
No
No
Mauritania
No
No
No
No
No
5
6
International Tax Alert
Country (continued)
2011
2012
2013
2014
2015
Mauritius
No
No
No
No
No
Mexico
No
No
No
No
No
Moldova
No
No
No
No
No
Mongolia
No
No
No
No
No
Montenegro
No
No
No
No
No
Morocco
No
No
No
No
No
Mozambique
No
No
No
No
No
Myanmar (Burma)
No
No
No
No
No
Namibia
No
No
No
No
No
Nepal
No
No
No
No
No
Netherlands
No
No
No
No
No
Netherlands Antilles
?
?
?
?
?
New Zealand
No
No
No
No
No
Nicaragua
No
No
No
No
No
Niger
No
No
No
No
No
Nigeria
No
No
No
No
No
Norway
No
No
No
No
No
Oman
No
No
No
No
No
Pakistan
No
No
No
No
No
Panama
No
No
No
No
No
Papua New Guinea
No
No
No
No
No
Paraguay
No
No
No
No
No
Peru
No
No
No
No
No
Philippines
No
No
No
No
No
Poland
No
No
No
No
No
Portugal
No
No
No
No
No
Qatar
No
No
No
No
No
Romania
No
No
No
No
No
Russia
No
No
No
No
No
Rwanda
No
No
No
No
No
Saint Kitts and Nevis
No
No
No
No
No
Saint Lucia
No
No
No
No
No
Saint Vincent and the
Grenadines
No
No
No
No
No
Samoa
No
No
No
No
No
San Marino
No
No
No
No
No
Sao Tome and Principe
No
No
No
No
No
Saudi Arabia
No
No
No
No
No
International Tax Alert
Country (continued)
2011
2012
2013
2014
2015
Senegal
No
No
No
No
No
Serbia
No
No
No
No
No
Seychelles
No
No
No
No
No
Sierra Leone
No
No
No
No
No
Singapore
No
No
No
No
No
Slovakia
No
No
No
No
No
Slovenia
No
No
No
No
No
Solomon Islands
No
No
No
No
No
South Africa
No
No
No
No
No
South Sudan
?
No
Hyper
Hyper
Hyper
Spain
No
No
No
No
No
Sri Lanka
No
No
No
No
No
Sudan
No
No
No
?
Hyper
Suriname
No
No
No
No
No
Swaziland
No
No
No
No
No
Sweden
No
No
No
No
No
Switzerland
No
No
No
No
No
Syria
No
No
No
?
?
Tanzania
No
No
No
No
No
Thailand
No
No
No
No
No
Timor-Leste
No
No
No
No
No
Togo
No
No
No
No
No
Tonga
No
No
No
No
No
Trinidad and Tobago
No
No
No
No
No
Tunisia
No
No
No
No
No
Turkey
No
No
No
No
No
Uganda
No
No
No
No
No
Ukraine
No
No
No
No
No
United Kingdom
No
No
No
No
No
Uruguay
No
No
No
No
No
Vanuatu
No
No
No
No
No
Venezuela
Hyper
Hyper
No
Hyper
Hyper
Vietnam
No
No
No
No
No
Yemen
No
No
No
No
?
Zambia
No
No
No
No
No
Zimbabwe
Hyper
Hyper
Hyper
Hyper
No
7
8
International Tax Alert
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP, International Tax Services - Capital Markets, Washington, DC
• Doug Chestnut
+1 202 327 5790
[email protected]
Ernst & Young LLP, International Tax Services - Capital Markets New York
• Colleen Zeller
• Stephen Jones
+1 212 773 6463
+1 212 773 0106
[email protected]
[email protected]
International Tax Services
Global ITS, Alex Postma, Tokyo
ITS Director, Americas, Jeffrey Michalak, Detroit
ITS Markets Leader, Americas, Stephen O’Neil, New York
Ernst & Young LLP, National Director of ITS Technical Services, Jose Murillo, Washington
Member firm contacts, Ernst & Young LLP (US)
Northeast
Johnny Lindroos, McLean, VA
Israel – Kost Forer Gabbay & Kasierer (Israel)
Sharon Shulman, Tel Aviv
Financial Services
Chris J Housman, New York
Mexico – Mancera, S.C. (Mexico)
Koen Van ‘t Hek, Mexico City
Central
Mark Mukhtar, Detroit
Central America – Ernst & Young, S.A.
Juan C Chavarria Pozuelo, San José
Southeast
Scott Shell, Charlotte, NC
South America – Ernst & Young Serviços Tributários S.S.
Gil F. Mendes, São Paulo
Southwest
Amy Ritchie, Austin
West
Beth Carr, San Jose, CA
Canada – Ernst & Young LLP (Canada)
Albert Anelli, Montreal
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