ABS Company has a foreign currency liability that gave rise to a non-deductible expense. Is the loss on the exchange difference arising on that liability not deductible?

This question highlights a gap in the tax legislation and gives rise to two different approaches to the answer.

Position A. An exchange difference is not the expense itself, but the result of remeasuring the liability. It is identified as a separate item in Article 320. The list of non-deductible expenses in Article 317 contains no item reading "exchange difference on a liability arising from a non-deductible expense". The company settles that liability with actual cash at the actual exchange rate. This is a real economic loss. It should therefore be deductible.