In brief
On 6 November 2025, the Fifth Superior Tax Court of the Judicial District of the Caracas Metropolitan Area issued Decision No. 011/2025 in Case No. AP41-U-2024-000140 ("CTC5 Decision"). On 26 February 2026, the Seventh Superior Tax Court of the Judicial District of the Caracas Metropolitan Area issued Decision No. 02/2026 in Case No. AP41-U-2023-000021 ("CTC7 Decision"). On 11 March 2026, the Fourth Superior Tax Court of the Judicial District of the Caracas Metropolitan Area issued Decision No. 002/2026 in Case No. AP41-U-2023-000143 ("CTC4 Decision").
These Decisions reaffirm key principles regarding the deductibility of foreign exchange (FX) losses under Article 186 of the Income Tax Law (ITL).
In more detail
Article 186 of the ITL governs the tax treatment of foreign exchange gains and the deductibility of foreign exchange (FX) losses, providing that FX losses are deductible when they become due, collected, or paid, whichever occurs first. Notwithstanding its substantive scope, the legislature included this provision in the ITL chapter addressing inflation adjustment.
In recent assessments, the Tax Administration has denied the deductibility of FX losses for taxpayers designated as Special Taxpayers, arguing that Article 186 is inapplicable by virtue of its placement within the inflation adjustment chapter. The Tax Administration’s position is that, since the 2015 ITL reform entered into force, Special Taxpayers have been excluded from the application of the inflation adjustment rules.
In response to this position, the courts have held that FX losses are deductible for income tax purposes pursuant to Article 186 of the ITL, read together with Article 27 of the ITL, which sets out the general requirements for the deductibility of expenses.
The CTC5 Decision expressly held that FX losses must be treated as deductible for income tax purposes as ordinary and necessary expenses incurred in the country for the generation of income, provided that (i) they satisfy the conditions under Article 27 of the ITL (i.e., that they were incurred or paid) and (ii) they qualify as deductible FX losses under Article 186 of the ITL, irrespective of Article 186’s placement within the ITL chapter on inflation adjustment.
In that case, the Court found (based on the accounting report submitted by the taxpayer) that the foreign-currency-denominated entries gave rise to a certain and definitive FX loss at the close of the relevant fiscal years. The Court further noted that, although the underlying invoices related to prior years, they were past due and therefore constituted enforceable obligations, thereby meeting the requirements set forth in Article 186 of the ITL.
By contrast, the CTC7 Decision emphasized that Article 186 of the ITL sets out the rule for recognizing FX gains and losses by reference to their enforceability or collectability, and reaffirmed that the provision’s placement within the chapter on inflation adjustment does not bar its application to Special Taxpayers.
In this regard, the Court held that the exclusion of Special Taxpayers from the inflation adjustment regime concerns non-monetary assets and liabilities. It therefore concluded that Article 186 of the ITL does not form part of the inflation adjustment system or methodology, given that it addresses monetary assets and liabilities. On that basis, the Court annulled the challenged administrative act, finding that the purported FX gain assessed by the Tax Administration arose from assets that had not been collected as of the end of the relevant fiscal year and, accordingly, was not taxable under Article 186 of the ITL.
Finally, the CTC4 Decision reiterated that Article 186 applies to Special Taxpayers because it pertains to monetary assets and liabilities, and that any contrary interpretation would deprive the tax treatment of FX gains and losses of practical effect. The CTC4 Decision further held that, based on a joint interpretation of the applicable provisions and the accounting report submitted and assessed, the accounting recognition of unrealized FX differences does not entail their economic recognition for ITL purposes, since income tax is levied on actual economic capacity rather than nominal gains.
We remain at your disposal should you require further details or clarification regarding the general aspects highlighted in the rulings in this alert, and for any related inquiries.