Office of Public Sector Information
PART II continued CHAPTER II continued
(1) In a case where—
(a) an exchange loss would (apart from this section) accrue to a company for an accrual period,
(b) the loss would accrue as regards an asset or liability falling within section 153(1)(a) or (2)(a) below,
(c) the nominal currency of the asset or liability is such that the main benefit or one of the main benefits that might be expected to arise from the company’s holding the asset or owing the liability is the accrual of the loss, and
(d) the Board direct that this subsection shall apply,
the loss shall be treated as not accruing.
(2) References in subsection (1) above to an exchange loss are to an exchange loss of a trade or an exchange loss of part of a trade or a non-trading exchange loss.
(1) Subject to the following provisions of this section, subsection (2) below applies where—
(a) a qualifying company becomes entitled to a qualifying asset falling within section 153(1)(a) below or subject to a qualifying liability falling within section 153(2)(a) below,
(b) the transaction as a result of which the company becomes entitled or subject to the asset or liability would not have been entered into at all if the parties to the transaction had been dealing at arm’s length, or the transaction’s terms would have been different if they had been so dealing,
(c) as regards the asset or liability an exchange loss accrues to the company for an accrual period (or would so accrue apart from this section), and
(d) the Board direct that subsection (2) below shall apply;
and any reference in this section to an exchange loss is to an exchange loss of a trade or an exchange loss of part of a trade or a non-trading exchange loss.
(2) The exchange loss shall be treated as not accruing to the company for the accrual period.
(3) Where subsection (2) above applies and the accrual period is not the last to occur as regards the asset or liability while it is held or owed by the company—
(a) an amount equal to the amount of the loss shall be set off against appropriate exchange gains accruing to the company as regards the asset or liability for subsequent accrual periods, and
(b) any such gain shall then be treated as reduced by that amount or by so much of it as cannot be set off under this subsection against any such gain accruing for an earlier accrual period;
and an appropriate exchange gain is an exchange gain of the trade concerned (if the exchange loss is an exchange loss of a trade) or an exchange gain of the part of the trade concerned (if the exchange loss is an exchange loss of part of a trade) or a non-trading exchange gain (if the exchange loss is a non-trading exchange loss).
(4) Subsection (5) below applies where the circumstances are such that, had the parties to the transaction been dealing at arm’s length, its terms would have been the same except that the amount of the debt would have been an amount (the adjusted amount) greater than nil but less than its actual amount.
(5) In such a case—
(a) subsection (2) above shall not apply, and
(b) the exchange loss accruing to the company for the accrual period shall be treated as reduced to the amount it would have been if the amount of the debt had been the adjusted amount;
but paragraph (b) above shall only apply if the Board so direct.
(6) Where subsection (5)(b) above applies and the accrual period is not the last to occur as regards the asset or liability while it is held or owed by the company—
(a) an amount equal to the amount by which the loss is treated as reduced shall be set off against appropriate exchange gains accruing to the company as regards the asset or liability for subsequent accrual periods, and
(b) any such gain shall then be treated as reduced by that amount or by so much of it as cannot be set off under this subsection against any such gain accruing for an earlier accrual period;
and an appropriate exchange gain is an exchange gain of the trade concerned (if the exchange loss is an exchange loss of a trade) or an exchange gain of the part of the trade concerned (if the exchange loss is an exchange loss of part of a trade) or a non-trading exchange gain (if the exchange loss is a non-trading exchange loss).
(7) Subsection (2) above shall not apply in a case where—
(a) the right constituting the asset mentioned in subsection (1) above arises under a loan made by the company,
(b) the circumstances are such that, had the parties to the transaction been dealing at arm’s length, its terms would have been the same except that interest would have been charged on the loan or, as the case may be, charged at a higher rate, and
(c) in computing for tax purposes the profits or losses of the company for the accounting period which constitutes the accrual period or in which the accrual period falls the whole of the loan has been treated under section 770 of the Taxes Act 1988 (undervalue or overvalue) as if interest had been charged on it or, as the case may be, charged at a higher rate.
(8) Subsection (9) below applies where—
(a) paragraphs (a) and (b) of subsection (7) above apply, and
(b) in computing for tax purposes the profits or losses of the company for the accounting period which constitutes the accrual period or in which the accrual period falls part of the loan has been treated under section 770 of the Taxes Act 1988 as if interest had been charged on it or, as the case may be, charged at a higher rate;
and in subsection (9) below the reference to the adjusted amount is to an amount equal to the part of the loan that has been so treated.
(9) In such a case—
(a) subsection (2) above shall not apply, and
(b) the exchange loss accruing to the company for the accrual period shall be treated as reduced to the amount it would have been if the amount of the loan had been the adjusted amount;
but paragraph (b) above shall only apply if the Board so direct.
(10) Where subsection (9)(b) above applies and the accrual period is not the last to occur as regards the asset while it is held by the company—
(a) an amount equal to the amount by which the loss is treated as reduced shall be set off against appropriate exchange gains accruing to the company as regards the asset for subsequent accrual periods, and
(b) any such gain shall then be treated as reduced by that amount or by so much of it as cannot be set off under this subsection against any such gain accruing for an earlier accrual period;
and an appropriate exchange gain is an exchange gain of the trade concerned (if the exchange loss is an exchange loss of a trade) or an exchange gain of the part of the trade concerned (if the exchange loss is an exchange loss of part of a trade) or a non-trading exchange gain (if the exchange loss is a non-trading exchange loss).
(11) Subsections (2) to (10) above shall not apply where—
(a) the transaction is entered into by the company mentioned in subsection (1) above (company A) and another company (company B),
(b) the companies are members of the same group when the transaction is entered into and throughout the accounting period which constitutes the accrual period mentioned in subsection (1) above or in which the accrual period falls,
(c) as a result of the transaction, not only does company A become entitled or subject to the asset or liability falling within section 153(1)(a) or (2)(a) below but company B also becomes subject or entitled to the corresponding liability or asset (as the case may be) falling within section 153(2)(a) or (1)(a) below,
(d) as regards that liability or asset an appropriate exchange gain accrues to company B for an accrual period coterminous with that mentioned in subsection (1) above,
(e) throughout the accrual period concerned company A holds or owes the asset or liability either for the purposes of one trade or for non-trading purposes,
(f) throughout the accrual period concerned company B owes or holds the liability or asset either for the purposes of one trade or for non-trading purposes, and
(g) amount X is the same as amount Y.
(12) For the purposes of subsection (11) above—
(a) an appropriate exchange gain is an exchange gain of a trade or a non-trading exchange gain found (in either case) in the currency in which the exchange loss mentioned in subsection (1) above is found;
(b) amount X is the amount of the exchange loss mentioned in subsection (1) above;
(c) amount Y is the amount of the exchange gain mentioned in subsection (11)(d) above, found without regard to section 139 below;
(d) companies are members of the same group if by virtue of section 170 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 they are members of the same group for the purposes of sections 171 to 181 of that Act.
(13) Where the exchange loss mentioned in subsection (1) above represents the whole or part of an initial exchange loss accruing under section 127 above, this section shall have effect as if subsections (4) to (12) were omitted.
(14) Regulations may make provision designed to supplement this section in its application to a case where the exchange loss mentioned in subsection (1) above represents the whole or part of an initial exchange loss accruing under section 127 above; and the regulations may in particular contain provision based on subsections (4) to (12) above but differing from those subsections to such extent as the Treasury think fit.
(15) In applying subsections (1)(b), (4) and (7)(b) above all factors shall be taken into account including any interest or other sums that would have been payable, any currency that would have been involved, and the amount that any loan would have been.
(1) Subsection (2) below applies where—
(a) a qualifying company enters into a currency contract,
(b) the contract would not have been entered into at all if the parties to it had been dealing at arm’s length, or the contract’s terms would have been different if they had been so dealing,
(c) as regards the contract an exchange loss accrues to the company for an accrual period (or would so accrue apart from this section), and
(d) the Board direct that subsection (2) below shall apply;
and any reference in this section to an exchange loss is to an exchange loss of a trade or an exchange loss of part of a trade or a non-trading exchange loss.
(2) The exchange loss shall be treated as not accruing to the company for the accrual period.
(3) Where subsection (2) above applies and the accrual period is not the last to occur as regards the contract while it is held by the company—
(a) an amount equal to the amount of the loss shall be set off against appropriate exchange gains accruing to the company as regards the contract for subsequent accrual periods, and
(b) any such gain shall then be treated as reduced by that amount or by so much of it as cannot be set off under this subsection against any such gain accruing for an earlier accrual period;
and an appropriate exchange gain is an exchange gain of the trade concerned (if the exchange loss is an exchange loss of a trade) or an exchange gain of the part of the trade concerned (if the exchange loss is an exchange loss of part of a trade) or a non-trading exchange gain (if the exchange loss is a non-trading exchange loss).
(4) In applying subsection (1)(b) above all factors shall be taken into account including any currency that would have been involved and any amounts that would have been involved.
(1) Subsection (2) below applies where—
(a) an exchange gain of a trade, or of part of a trade, accruing to a company for an accrual period falls to be reduced by virtue of section 136(3), (6) or (10) or 137(3) above, and
(b) the amount falling to be set off is expressed in a currency (the first currency) different from the currency in which the gain is expressed (the second currency).
(2) For the purposes of section 136(3), (6) or (10) or 137(3) the amount falling to be set off shall be treated as the equivalent, expressed in the second currency, of the amount expressed in the first currency.
(3) The translation required by subsection (2) above shall be made by reference to the London closing exchange rate for the two currencies concerned for the first day of the accounting period which constitutes the relevant accrual period or in which that accrual period falls; and the relevant accrual period is the accrual period mentioned in subsection (1)(a) above.
(4) Subsection (2) above shall have effect subject to the application for succeeding accrual periods of this section as regards an amount falling to be set off.
(5) References in subsections (1) and (2) above to the amount falling to be set off include references to so much of that amount as remains after any application of section 136(3), (6) or (10) or 137(3) for earlier accrual periods.
(1) This section applies where (apart from a claim under this section as regards an accounting period) an unrealised exchange gain would accrue to a company—
(a) for an accrual period constituting or falling within the accounting period, and
(b) as regards a long-term capital asset or a long-term capital liability;
and the reference here to an exchange gain is to an exchange gain of a trade or an exchange gain of part of a trade or a non-trading exchange gain.
(2) This section does not apply unless an amount is available for relief under this section for the accounting period.
(3) The company may claim that—
(a) the gain, or part of it, shall be treated in accordance with section 140(3) below, and
(b) an amount shall be treated in accordance with section 140(4) to (10) below as regards the asset or liability.
(4) The claim must—
(a) stipulate the amount of the gain or part to be treated as mentioned in subsection (3)(a) above;
(b) stipulate the amount to be treated as mentioned in subsection (3)(b) above;
(c) identify the asset or liability concerned.
(5) The following rules apply to a claim—
(a) only one claim may be made as regards an accounting period, but where this section applies in relation to two or more gains which would accrue to a company for an accrual period or accrual periods constituting or falling within the accounting period the claim may be made in relation to more than one of the gains;
(b) the amount stipulated under subsection (4)(b) above as regards an asset or liability must be the same as, and must be expressed in the same currency as, the amount of the gain or part stipulated under subsection (4)(a) above as regards the asset or liability;
(c) the amount (or total of the amounts) stipulated under subsection (4)(a) above as regards an accounting period must not exceed the amount available for relief under this section for the accounting period.
(6) A claim may not be made or withdrawn as regards an accounting period if—
(a) the company has been assessed to corporation tax for the period, and
(b) the assessment has become final and conclusive;
but the preceding provisions of this subsection do not apply if the claim or withdrawal is made before the expiry of the period of two years beginning with the end of the accounting period.
(7) In a case where—
(a) the period of six years beginning with the end of an accounting period expires, and
(b) no assessment of the company to corporation tax for the accounting period has become final and conclusive,
a claim may not be made or withdrawn as regards that accounting period.
(8) In a case where—
(a) subsection (6) or (7) above would otherwise prevent a claim being made in a particular case, and
(b) the Board make a determination under this subsection,
a claim may be made on or before such day as the Board allow.
(1) This section applies where a claim is made under section 139 above as regards an asset or liability.
(2) For the purposes of this section—
(a) the first accrual period is the accrual period mentioned in section 139(1) above, and
(b) the second accrual period is the accrual period next occurring as regards the asset or liability while it is held or owed by the company.
(3) Any gain or part whose amount is stipulated under section 139(4)(a) above as regards the asset or liability shall be treated as not accruing as regards the asset or liability for the first accrual period.
(4) If throughout the second accrual period the asset is held, or the liability is owed, by the company solely for the purposes of a trade or part of a trade—
(a) an exchange gain of the trade or part for the accrual period shall be treated as accruing to the company as regards the asset or liability,
(b) the amount of the gain shall be the amount stipulated under section 139(4)(b) above as regards the asset or liability, and
(c) section 128(4) above shall apply.
(5) If throughout the second accrual period the asset is held, or the liability is owed, by the company solely for purposes other than trading purposes—
(a) a non-trading exchange gain for the accrual period shall be treated as accruing to the company as regards the asset or liability,
(b) the amount of the gain shall be the amount stipulated under section 139(4)(b) above as regards the asset or liability, and
(c) section 129(2) above shall apply.
(6) Where as regards the second accrual period neither subsection (4) nor subsection (5) above applies—
(a) the amount stipulated under section 139(4)(b) above as regards the asset or liability shall be apportioned for the period on a just and reasonable basis, and
(b) subsections (7) and (8) below shall apply.
(7) Where for the second accrual period part of an amount is attributed to a trade or part of a trade under subsection (6) above—
(a) an exchange gain of the trade or part for the accrual period shall be treated as accruing to the company as regards the asset or liability,
(b) the amount of the gain shall be the amount of the part so attributed, and
(c) section 128(4) above shall apply.
(8) Where for the second accrual period part of an amount is attributed to purposes other than trading purposes under subsection (6) above—
(a) a non-trading exchange gain for the accrual period shall be treated as accruing to the company as regards the asset or liability,
(b) the amount of the gain shall be the amount of the part so attributed, and
(c) section 129(2) above shall apply.
(9) In a case where—
(a) an exchange gain of a trade or of part of a trade for the second accrual period is treated as accruing to a company by virtue of the preceding provisions of this section (or would be so treated apart from this subsection), and
(b) in that period the asset or liability is to any extent held or owed by the company in exempt circumstances,
to that extent the gain shall be treated as a non-trading exchange gain (and not as a gain of the trade or part) and section 129(2) above shall apply.
(10) Any apportionment required by subsection (9) above shall be made on a just and reasonable basis.
(11) Subsections (4) to (10) above shall have effect subject to any further application of section 139 above as regards the asset or liability.
(12) For the purposes of this section a part of a trade is any part of a trade whose basic profits or losses for the relevant accounting period are by virtue of regulations under section 94 above to be computed and expressed in a particular currency for the purposes of corporation tax; and the relevant accounting period is the accounting period which constitutes the second accrual period or in which that accrual period falls.
(1) An amount is available for relief under section 139 above for an accounting period if amount A is exceeded by amount B or (if amount C is lower than amount B) amount A is exceeded by amount C; and the amount available for relief for the period is the amount of the difference between amount A and amount B or (as the case may be) between amount A and amount C.
(2) Amount A is one tenth of the amount falling within subsection (3) below.
(3) The amount falling within this subsection is an amount equal to the amount of the company’s profits for the accounting period on which corporation tax would fall finally to be borne apart from—
(a) a claim under section 139 above as regards the accounting period, and
(b) section 402 of the Taxes Act 1988 (group relief);
and section 238(4) of the Taxes Act 1988 (amount of profits on which corporation tax falls finally to be borne) shall apply for the purposes of this subsection.
(4) Amount B is the amount found by deducting amount B(2) from amount B(1) where—
(a) amount B(1) is the total amount of unrealised exchange gains which accrue or would (apart from a claim under section 139 above as regards the accounting period) accrue to the company, in an accrual period or accrual periods constituting or falling within the accounting period, as regards long-term capital assets or long-term capital liabilities or both;
(b) amount B(2) is the total amount of unrealised exchange losses accruing to the company in such an accrual period or accrual periods as regards such assets or liabilities or both.
(5) Amount C is the amount found by deducting amount C(2) from amount C(1) where—
(a) amount C(1) is the total amount of exchange gains which accrue or would (apart from a claim under section 139 above as regards the accounting period) accrue to the company, in an accrual period or accrual periods falling within the accounting period, as regards relevant items;
(b) amount C(2) is the total amount of exchange losses accruing to the company in such an accrual period or periods as regards relevant items.
(6) In subsections (4) and (5) above the references to exchange gains and losses are to exchange gains and losses of a trade and exchange gains and losses of part of a trade and non-trading exchange gains and losses.
(7) For the purposes of subsection (5) above relevant items are—
(a) assets falling within section 153(1)(a) below;
(b) liabilities falling within section 153(2)(a) below;
(c) currency contracts.
(1) Where apart from this subsection—
(a) a gain falling within section 139(1) above would be expressed in a currency other than sterling, or
(b) a gain or loss falling within section 141(4) or (5) above would be expressed in a currency other than sterling,
the amount of the gain or loss shall be treated for the purposes of sections 139 to 141 above as the sterling equivalent of its amount expressed in the other currency.
(2) For the purposes of subsection (1) above the sterling equivalent of an amount is—
(a) the sterling equivalent calculated by reference to such rate of exchange as applies by virtue of section 93(6) above in the case of the basic profits or losses for the accounting period concerned of the trade of which the gain or loss is a gain or loss (or would be apart from section 139 above), or
(b) the sterling equivalent calculated by reference to such rate of exchange as applies by virtue of section 94(11) above in the case of the basic profits or losses for the accounting period concerned of the part of the trade of which the gain or loss is a gain or loss (or would be apart from section 139 above).
(3) Subsection (4) below applies where—
(a) part of an exchange gain of a trade, or part of an exchange gain of part of a trade, is treated as not accruing to a company for an accrual period by virtue of section 140(3) above, and
(b) the local currency of the trade or part for the accounting period which constitutes the accrual period or in which it falls is a currency other than sterling.
(4) The amount the company is treated as receiving under section 128(4) above in respect of the accounting period and by virtue of the gain (as reduced) shall be taken into account after the basic profits or losses of the trade or part for the accounting period are found in sterling for the purposes of corporation tax.
(5) In a case where—
(a) an exchange gain of a trade, or of part of a trade, for an accrual period is treated as accruing to a company under section 140 above, and
(b) the local currency of the trade or part for the accounting period which constitutes the accrual period or in which it falls is a currency other than sterling,
the amount of the gain shall be treated as the local currency equivalent of its amount expressed in sterling.
(6) The translation required by subsection (5) above shall be made by reference to the London closing exchange rate for the two currencies concerned—
(a) for the last day of the accrual period mentioned in subsection (5) above, or
(b) if that accrual period does not end with the end of a day, for the day on which that accrual period ends.
(1) For the purposes of sections 139 and 141 above and this section an exchange gain or loss is unrealised if the accrual period concerned is one which ends solely by virtue of an accounting period of the company coming to an end.
(2) In a case where—
(a) an unrealised exchange gain would accrue as mentioned in section 139(1) above,
(b) the gain represents the whole or part of an initial exchange gain accruing under section 127 above, and
(c) the whole or part of the unrealised exchange gain is attributable to any part by which the nominal amount of the debt has decreased,
the company may not claim under section 139 above as regards so much of the unrealised exchange gain as is so attributable.
(3) In applying subsection (2)(c) above the gain shall be apportioned on a just and reasonable basis.
(4) For the purposes of sections 139 and 141 above an asset or liability is a long-term capital asset or liability if the following conditions are fulfilled—
(a) the asset or liability falls within section 153(1)(a) or (2)(a) below,
(b) the debt under which it subsists is such that, under the terms as originally entered into, the time for settlement is not less than one year from the time when the debt was created, and
(c) the asset or liability represents capital throughout the accounting period mentioned in section 139(1) above;
and the time for settlement is the earliest time at which the creditor can require settlement if he exercises all available options and rights.
(5) For the purposes of section 140 above an asset is held, or a liability is owed, in exempt circumstances at a given time if it is then held or owed—
(a) for the purposes of long term insurance business;
(b) for the purposes of mutual insurance business;
(c) for the purposes of the occupation of commercial woodlands;
(d) by a housing association approved at that time for the purposes of section 488 of the Taxes Act 1988;
(e) by a self-build society approved at that time for the purposes of section 489 of that Act.
(6) In subsection (5) above—
“long term insurance business” means insurance business of any of the classes specified in Schedule 1 to the [1982 c. 50.] Insurance Companies Act 1982;
“commercial woodlands” means woodlands in the United Kingdom which are managed on a commercial basis and with a view to the realisation of profits.
(7) Regulations may—
(a) make provision modifying the effect of sections 139 to 142 above and the preceding provisions of this section in a case where the debt under which a long-term capital asset or liability subsists is settled and replaced to any extent by another debt under which (or other debts under each of which) such an asset or liability subsists;
(b) make provision modifying the effect of sections 139 to 142 above and the preceding provisions of this section in a case where a group of companies is involved;
(c) provide that the amount falling within section 141(3) above shall be treated as reduced in accordance with prescribed rules;
and any provision under paragraph (a) above may include provision that realised gains or losses are to be treated as wholly or partly unrealised.
(1) In a case where—
(a) a qualifying company holds an asset consisting of a right to settlement under a qualifying debt or owes a liability consisting of a duty to settle under such a debt, and
(b) the inspector is satisfied, as regards any accounting period of the company, that all of the debt outstanding immediately before the end of the period could at that time reasonably have been regarded as irrecoverable,
the company shall be treated for the purposes of this Chapter as if immediately before the end of that accounting period it ceased to be entitled to the asset or subject to the liability.
(2) Subsection (3) below applies in a case where—
(a) paragraph (a) of subsection (1) above applies, and
(b) the inspector is satisfied, as regards any accounting period of the company, that part of the debt outstanding immediately before the end of the period could at that time reasonably have been regarded as irrecoverable.
(3) The company shall be treated for the purposes of this Chapter as if—
(a) immediately after the beginning of the accounting period next following the accounting period mentioned in subsection (2) above there were a decrease in the nominal amount of the debt outstanding, and
(b) the decrease were of an amount equal to so much of the debt, expressed in its settlement currency, as was outstanding immediately before the end of the accounting period mentioned in subsection (2) above and in the opinion of the inspector could at that time reasonably have been regarded as irrecoverable.
(4) Where there is an appeal, this section shall be construed as if—
(a) “inspector is satisfied” (in each place) read “Commissioners concerned are satisfied”, and
(b) “opinion of the inspector” read “opinion of the Commissioners concerned”.
(1) Subsection (2) below applies where—
(a) a company has been treated as mentioned in section 144(1) above as regards a debt,
(b) at a time (the later time) falling after the end of the accounting period mentioned in section 144(1)(b) above all or part of the debt is actually outstanding, and
(c) the inspector is satisfied that all or part of the amount actually outstanding at the later time could at that time reasonably have been regarded as recoverable.
(2) The company shall be treated for the purposes of this Chapter as if—
(a) immediately after the later time it had become entitled to an asset consisting of a right to settlement under the debt or (as the case may be) subject to a liability consisting of a duty to settle under the debt, and
(b) the nominal amount of the debt outstanding, at the time the company became entitled or subject to the asset or liability, were an amount equal to so much of the debt, expressed in its settlement currency, as was actually outstanding at the later time and in the opinion of the inspector could at that time reasonably have been regarded as recoverable.
Finance Act 1993