Statutory Instrument 1998 No. 3177

The European Single Currency (Taxes) Regulations 1998

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© Crown Copyright 1998

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"qualifying contract" shall be construed in accordance with sections 147, 147A and 148 of the Finance Act 1994[3];

"reconventioning" in relation to a relevant asset means a change, consequent on simple redenomination, in the terms of the asset as a result of which the new terms become aligned to the prevailing terms of equivalent marketable relevant assets denominated in euro;

"relevant asset" means a debt (whether or not a debt on a security), a long-term capital asset, a long-term capital liability, an option, a qualifying contract, or any commodity or financial futures;

"renominalisation" in relation to a relevant asset means a change, consequent on simple redenomination, in the minimum nominal amount in which the asset can be held or traded to a new round amount;

"security" has the meaning given by section 132(3)(b) of the 1992 Act;

"simple redenomination" means the conversion of the currency in which an asset, liability, contract or instrument is expressed from the currency of a participating member State into euro, and any rounding of the resulting amount to the nearest euro cent;

"the Taxes Act" means the Income and Corporation Taxes Act 1988[4];

"the 1992 Act" means the Taxation of Chargeable Gains Act 1992[5].

    (2) In these Regulations references to an option, without more, are references to an option to which section 144 or 144A[6] of the 1992 Act applies.

Definition of euroconversion
     3.  - (1) "Euroconversion" means  - 

(a) in relation to any currency, or an amount expressed in any currency, of a participating member State, the conversion or restating of that currency or that amount into euro and any rounding of the resulting amount within a euro;

(b) in relation to any asset, liability, contract or instrument - 


(i) the simple redenomination of that asset, liability, contract or instrument, or

(ii) in the case of a relevant asset, the simple redenomination of that asset accompanied by either or both of renominalisation and reconventioning, or

(iii) the substitution (whether by way of exchange, conversion, replacement or otherwise) for the asset, liability, contract or instrument of an equivalent replacement asset, liability, contract or instrument.

    (2) An equivalent replacement asset, liability, contract or instrument means an asset, liability, contract or instrument whose amount, terms and conditions are identical to what it is reasonable to assume would be the amount, terms and conditions of the original asset, liability, contract or instrument were it to undergo a simple redenomination, or (in the case of a relevant asset) a simple redenomination accompanied by either or both of renominalisation and reconventioning.

    (3) For the purposes of paragraphs (1) and (2) a simple redenomination is accompanied (in the case of a relevant asset) by renominalisation or reconventioning if either - 

(a) the renominalisation or reconventioning is effected simultaneously, or

(b) it is effected within a period of time following the simple redenomination which is such as to enable it reasonably to be inferred that the renominalisation or reconventioning is associated with the simple redenomination.

shall be treated as sums disbursed as expenses of management to which section 75(1) of the Taxes Act (deduction in computing total profits of an investment company for an accounting period) applies.

    (2) Costs incurred by a company carrying on life assurance business in respect of a euroconversion of its shares or other securities shall be deductible in computing the profits of that company chargeable to corporation tax under Case VI of Schedule D as if those costs were allowances falling to be made under Part II of the Capital Allowance Act 1990[8] and referred to in subsection (4) of section 434D[9] of the Taxes Act; and accordingly those costs shall be apportioned in accordance with that subsection between the different classes of life assurance business carried on by that company.

    (3) Section 76 of the Taxes Act (expenses of management: insurance companies) shall have effect as if the reference in subsection (1)(d)[10] of that section (disallowance of certain expenses as expenses of management) to expenses referable to different classes of life assurance business included a reference to costs apportioned to those classes of business under paragraph (2).

    (4) In this regulation - 

"investment company" has the meaning given by section 130 of the Taxes Act;

"life assurance business" shall be construed in accordance with section 431(2) of the Taxes Act.

(a) the new long-term capital asset or the new long-term capital liability shall be treated as if it were the same asset or liability as the original long-term capital asset or the original long-term capital liability, acquired when the original long-term capital asset or the original long-term capital liability was acquired; and

(b) any gain which accrued as respects the original long-term capital asset or the original long-term capital liability for the accrual period in which the euroconversion of that asset or liability took place shall, without prejudice to regulation 2 of the Exchange Gains and Losses (Deferral of Gains and Losses) Regulations 1994[11] (settlement and replacement of debts), be deemed to be unrealised, and sections 139 to 143 (apart from section 143(7)) of the Finance Act 1993 shall have effect accordingly.

    (2) In paragraph (1) "accrual period" shall be construed in accordance with section 158(4) of the Finance Act 1993.

Interest rate contracts (including options) - change in rate of interest
     8. Where, as a result of the adoption of the euro by a member State - 

(a) there is a change in the variable rate of interest resulting in a change in the variable rate payment specified in a contract ("the original contract") in accordance with subsection (2) of section 149 of the Finance Act 1994, and

(b) the change in the variable rate payment is such as to result in the rescission of the original contract and the making of a new contract,

the new contract shall be treated for the purposes of that section as if it were the same contract as the original contract, made when the original contract was made.

Currency contracts (including options) - change in rate of interest
     9. Where, as a result of the adoption of the euro by a member State - 

(a) there is a change in the rate of interest specified in a currency contract ("the original contract") in accordance with subsection (3) of section 150 of the Finance Act 1994, and

(b) the change is such as to result in the rescission of the original contract and the making of a new contract,

the new contract shall be treated for the purposes of that section as if it were the same contract as the original contract, made when the original contract was made.

Currency contracts (including options) - conversion into euro
     10.  - (1) This regulation applies in a case where, as a result of the adoption of the euro by member States - 

(a) the amounts of both the currencies specified in a currency contract referred to in section 126 of the Finance Act 1993 ("section 126"), or in a currency contract referred to in section 150 of the Finance Act 1994 ("section 150"), are converted into euro, and

(b) the effect is that the currency contract ("the original currency contract") is rescinded and replaced by a new contract which, but for the adoption of the euro, would have been a currency contract.

    (2) This regulation also applies in a case where - 

(a) one of the currencies ("the former currency") specified in a currency contract referred to in section 126 or section 150 is in a currency other than euro and the other currency is either in euro or expressed to be in the single currency,

(b) as a result of the adoption of the euro by a member State, the former currency is converted into euro, and

(c) the effect is that the currency contract ("the original currency contract") is rescinded and replaced by a new contract which, but for the adoption of the euro, would have been a currency contract.

    (3) In each of the cases referred to in paragraphs (1) and (2) the new contract shall be treated for the purposes of section 126 or, as the case may be, section 150 as if it were a currency contract and were the same contract as the original currency contract, made when the original currency contract was made.

Debt contracts (including options) - conversion into euro
     11.  - (1) Where as a result of the adoption of the euro by a member State - 

(a) there is a euroconversion of the loan relationship to which, under a debt contract, a qualifying company has any entitlement, or is subject to any duty, to become a party, or

(b) a qualifying company has any entitlement, or is subject to any duty, to become treated as a person with rights and liabilities corresponding to those of a party to a loan relationship and there is a euroconversion of any of those rights and liabilities, and

(c) in either of the cases referred to in sub-paragraphs (a) and (b) the effect is that the original debt contract is rescinded and replaced by a new debt contract,

the new debt contract shall be treated for the purposes of section 150A of the Finance Act 1994[12] (debt contracts and options) as if it were the same contract as the original debt contract, made when the original debt contract was made.

    (2) In paragraph (1) - 

"debt contract" has the meaning given by section 150A(1) and (2) of the Finance Act 1994;

"loan relationship" has the meaning given by section 81 of the Finance Act 1996, read with section 150A(10) of the Finance Act 1994;

"qualifying company" shall be construed in accordance with section 154 of the Finance Act 1994.

[2] 1998 c. 36.back

[3] 1994 c. 9. Section 147A was inserted by section 101(2) of the Finance Act 1996 (c. 8).back

[4] 1988 c. 1.back

[5] 1992 c. 12.back

[6] Section 144A was inserted by section 96 of the Finance Act 1994.back

[7] Section 74(1) was amended by section 144(2) of the Finance Act 1994 and by paragraph 1 of Schedule 7 to the Finance Act 1998.back

[8] 1990 c. 1.back

[9] Section 434D was inserted by paragraph 23 of Schedule 8 to the Finance Act 1995 (c. 4).back

[10] Section 76(1)(d) was amended by paragraph 1 of Schedule 7 to the Finance Act 1990 (c. 29), paragraph 1 of Schedule 7, and Part V of Schedule 19, to the Finance Act 1991 (c. 31), and paragraph 7 of Schedule 8 to the Finance Act 1995.back

[11] S.I. 1994/3228, amended by S.I. 1996/1348.back

[12] Section 150A was inserted by Schedule 12 to the Finance Act 1996.back