The law stipulates that the replacement of the peseta with the euro does not affect existing contracts or obligations, and therefore this change cannot be used as a pretext to unilaterally alter or terminate existing contracts (Principle of Legal Continuity). Similarly, references contained in any legal document (deeds, contracts, guarantees, etc.) are valid and effective whether expressed in pesetas or euros (Principle of Fungibility).
Furthermore, the monetary amount expressed in EUROS will be equivalent to that expressed in pesetas, provided that the conversion and rounding rules have been correctly applied (Principle of equivalence). And, of course, the Regulations stipulate that peseta to EURO exchange transactions and any actions necessary for their replacement will be free of charge (Principle of free service).
Regarding the most important accounting aspects, it should be noted that all financial years ending on or after January 1, 2002, must be expressed in Euros. Therefore, annual accounts closed on or after December 31, 2001, must be expressed in Euros, and any data from the previous year that should be included in those annual accounts must be converted to Euros.
Regarding expenses that may be incurred as a result of the introduction of the Euro, these will be considered expenses for the current fiscal year. Furthermore, provisions (not tax-deductible except in specific circumstances) may be established for this purpose, while losses resulting from the conversion of capital assets (software applications, cash registers, vending machines, etc.) may be recognized. The effects of the Euro conversion must be included in the notes to the financial statements.
It is also interesting to emphasize that due to the discrepancy caused by rounding in the conversion to EUROS, a charge or credit will be generated in the opening entry itself to the accounts of "exchange differences introduction to the euro" (6690 or 7690 respectively).
Another important point is that, according to the principle of fungibility, the capital will be considered converted to EUROS as of January 1, 2001. However, the share capital and the par value of the shares or units can be redenominated by means of a certificate from the board of directors. This action can be registered in the Commercial Registry by means of a marginal note. The par value of the shares or units can also be rounded to the nearest cent. This operation will require the corresponding increase or decrease in capital. Either method had reduced costs if carried out before December 31, 2001 (Principle of no cost).
Tax aspects
All tax returns filed from 1/1/2002 onwards must be prepared in EUROS (VAT and Personal Income Tax 4th Quarter 2001, Annual Summaries, Form 347, etc.). For supplementary returns filed from 1/1/2002 onwards, the currency in which the original return was prepared will be used (refunds will be issued in EUROS). For late filings, taxpayers may choose from the forms available on the original due date; if the forms were in pesetas, Form 777 must be included.
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