Rev. Rul. 75-107

M, a domestic corporation, has a branch operation in foreign country Y. The branch keeps a separate set of books in terms of the currency of country Y and renders a report to M at the end of the taxable year with respect to its net profit. Both M and its branch use an accrual method of accounting. The net profit for the current taxable year amounted to 10,000 units of country Y's currency (units). The branch made a remittance to M of 1,000 units on July 15 of the current taxable year. The currency exchange rate in existence when the remittance was made was $3 to 1 unit. The currency exchange rate at the end of the year of the current taxable year was $2.80 to 1 unit.

Held, the net profit of the branch located in Country Y for the year may be computed in the currency of Country Y. From the branch net profits for the year there should be subtracted the amount remitted to M during the year, expressed in Country Y units. To determine the equivalent of the profits in terms of United States money, the amount remitted should be converted into United States money at the rate of exchange in effect at the date such remittance was made. The balance of the net profits, expressed in Country Y's units should be converted into United States money at the rate of exchange as of the end of the taxable year, regardless of the fact that the profits may not have been remitted to M.

The calculation of the profit to be brought into M's account at year's end under the foregoing method would be made in two steps, as follows:

(1) Determining profit to be converted at years end

O.D. 550, 2 C.B. 61 (1920) is superseded, since the position set forth therein is restated under the current statute and regulations in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-6, 1967-1 C.B. 576.