Statutory Instruments 1998 No. 3177
The European Single Currency (Taxes) Regulations 1998 - continued

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Renominalisation resulting in new minimum denomination in which chargeable securities can be held or traded
     30.  - (1) This regulation applies in a case where - 

    (2) Where this regulation applies, the requirement for payment of the amount specified in paragraph (1)(e) is to be regarded, for the purposes of section 89AA of the Finance Act 1986, as equivalent to a requirement for the remainder of the chargeable securities to be transferred by P or his nominee to Q or his nominee.

    (3) The value referred to in paragraph (1)(e)(ii) is the appropriate proportion (based on nominal value) of the market value of the minimum amount of the original chargeable securities that, at the time of the transfer of chargeable securities referred to in paragraph (1)(b), could be traded.

    (4) Where the amount calculated in accordance with sub-paragraph (e) of paragraph (1) does not exceed 500 euros, and the arrangement does not require payment of a sum equal to this amount, this regulation shall have effect as if the amount calculated in accordance with that sub-paragraph were nil and the requirement specified in that sub-paragraph were satisfied.



PART VII

ACCRUED INCOME SCHEME

Interpretation
     31. In this Part of these Regulations - 

    "the accrued amount" has the meaning given by section 713(4) of the Taxes Act;

    "the accrued income provisions" means sections 710 to 728 of the Taxes Act;

    "interest period" shall be construed in accordance with section 711(3) and (4) of the Taxes Act except that, where securities are issued on an exchange of securities to which regulation 32 (exchange of securities resulting from euroconversion) applies, paragraph (a) of section 711(3) of that Act (commencement of interest period) shall have effect for the purposes of regulation 33 as if the reference in that paragraph to the day following that on which securities are issued were a reference to the day on which they are issued;

    "the rebate amount" has the meaning given by section 713(5) of the Taxes Act;

    "transfer" in relation to a transfer of securities has the meaning given by subsection (5), read with subsection (13), of section 710 of the Taxes Act.

Disapplication of accrued income provisions in respect of an exchange or conversion of securities resulting from a euroconversion
     32. An exchange or conversion of securities that arises solely as a result of actions to effect a euroconversion of those securities shall not constitute, or be treated as, a transfer of those securities for the purposes of the accrued income provisions.

Disapplication of variable interest rate provision in certain circumstances
     33.  - (1) This regulation applies in a case where, solely to provide for actions reasonably required to effect a euroconversion of a security - 

    (2) The provision for change in the rate of interest referred to in paragraph (1)(a) or (b) shall not cause the security concerned to be one to which section 717 of the Taxes Act applies.

Calculation of accrued amount or rebate amount in the event of a euroconversion of securities
     34.  - (1) This regulation applies in a case where - 

    (2) The accrued amount or, as the case may be, the rebate amount arising in respect of the transferred securities on the transfer shall be such amount as is just and reasonable.

Treatment of capital sum receivable on euroconversion of securities
     35.  - (1) This regulation applies in a case where - 

    (2) The person entitled to a capital sum in an interest period as mentioned in paragraph (1)(a) shall be regarded as entitled in that interest period to a sum on the securities, for the purposes of section 713(2)(a) or (3)(a), in an amount equal to the part of the sum referred to in paragraph (1)(b).



PART VIII

CHARGEABLE GAINS

Equation of holding of non-sterling currency with new euro holding on euroconversion
     36. A euroconversion of currency ("the original currency") shall not be treated for the purposes of the 1992 Act as involving any disposal of the original currency or any acquisition of the new euro holding or any part of it, but the original currency (taken as a single asset) and the new euro holding (taken as a single asset) shall be treated for those purposes as the same asset acquired as the original currency was acquired.

Equation of debt (other than a debt on a security) on euroconversion
     37. A euroconversion of a debt other than a debt on a security ("the original debt") shall not be treated for the purposes of the 1992 Act as involving any disposal of that debt by the creditor or any acquisition by him of a new debt or any part of it, but the original debt and the new debt shall be treated for those purposes (to the extent that they are not already so treated) as the same asset acquired as the original asset was acquired.

Derivatives over assets the subject of euroconversion
     38.  - (1) This regulation applies where - 

    (a) a derivative represents rights or obligations in respect of any asset or liability or other amount ("the underlying asset"),

    (b) there is a euroconversion of the underlying asset,

    (c) a transaction is entered into in relation to that derivative that would, but for this regulation, result in a disposal for the purposes of the 1992 Act of the derivative ("the original derivative") and the acquisition of a new derivative,

    (d) the terms of the new derivative differ from the terms of the original derivative only to the extent necessary to reflect the euroconversion of the underlying asset, and

    (e) no party to the transaction receives any consideration in respect of the original derivative other than the new derivative.

    (2) The transaction described at paragraph (1)(c) shall not be treated for the purposes of the 1992 Act as involving any disposal of the original derivative or any acquisition of the new derivative, but the original derivative and the new derivative shall be treated for those purposes as the same asset acquired as the original derivative was acquired.

Cash payments received on euroconversion of securities
     39. Chapter II of Part IV of the 1992 Act shall have effect as if after section 133 of that Act (premiums on conversion of securities) there were inserted the following section - 

    " Cash payments received on euroconversion of securities
             133A.  - (1) This section applies where, under a euroconversion of a security that does not involve a disposal of the security and accordingly is not a conversion of securities within section 132(3)(a)[20], a person receives, or becomes entitled to receive, any sum of money ("the cash payment").

        (2) If the cash payment is small, as compared with the value of the security concerned - 

      (a) receipt of the cash payment shall not be treated for the purposes of this Act as a disposal of part of the security, and

      (b) the cash payment shall be deducted from any expenditure allowable under this Act as a deduction in computing a gain or a loss on a disposal of the security by the person receiving or becoming entitled to receive the cash payment.

        (3) Where the allowable expenditure is less than the cash payment (or is nil) - 

      (a) subsection (2) above shall not apply, and

      (b) if the recipient so elects (and there is any allowable expenditure) - 

        (i) the amount of the cash payment shall be reduced by the amount of the allowable expenditure, and

        (ii) none of that expenditure shall be allowable as a deduction in computing a gain accruing on the occasion of the euroconversion or on any subsequent occasion.

        (4) In this section - 

      (a) "allowable expenditure" means expenditure which immediately before the euroconversion was attributable to the security under paragraphs (a) and (b) of section 38(1);

      (b) "euroconversion" has the meaning given by regulation 3 of the European Single Currency (Taxes) Regulations 1998."



PART IX

CONTROLLED FOREIGN COMPANIES

Replacement of currency used in accounts of controlled foreign company by euro
     40.  - (1) This regulation applies in a case where, as a result of the adoption of the euro by a participating member State, the currency used in the accounts of a controlled foreign company for the first relevant accounting period of the company is to be replaced by the euro.

    (2) Section 747A(2)[21] of the Taxes Act shall have effect as if it provided that - 

    (a) where the currency used in the accounts of the controlled foreign company for the first relevant accounting period was the ecu, the chargeable profits for any subsequent accounting period ending on or after 1st January 1999 should be computed and expressed in the euro;

    (b) where the currency used in the accounts of the controlled foreign company for the first relevant accounting period was a currency other than the ecu - 

      (i) the chargeable profits for any subsequent accounting period in which, or in any part of which, the currency continues to exist as a legal sub-unit of the euro should be computed and expressed in either the currency so used or the euro;

      (ii) the chargeable profits for any accounting period beginning after the end of the latest accounting period referred to in paragraph (i) should be computed and expressed in the euro.



PART X

AMENDMENTS TO THE LOCAL CURRENCY ELECTIONS REGULATIONS

Introductory
     41.  - (1) The Local Currency Elections Regulations 1994[22] ("the 1994 Regulations") shall have effect in relation to the adoption of the euro by a member State with the modifications specified in regulations 42 to 47.

    (2) Except where otherwise defined in these Regulations, expressions used in this Part of these Regulations have the meanings given by the 1994 Regulations, and references to a regulation in regulations 42 to 47 are references to a regulation of the 1994 Regulations.

Period for determining validity of elections
     42.  - (1) In regulation 5(2) - 

    (a) in sub-paragraph (a) after the words "trade is carried on" there shall be inserted

           " , determined - 

        (i) at the beginning of the first accounting period to which the election applies and at any time thereafter, or

        (ii) where the election is for a part of a trade which the company begins to carry on at a time in the first accounting period to which the election applies which is not the beginning of that accounting period, at the time the part of the trade commences and at any time thereafter";

    (b) in sub-paragraph (b) there shall be added at the end "as regards the first accounting period to which the election applies and subsequent accounting periods".

    (2) In regulation 6 after the words "In determining" there shall be inserted "for the purposes of regulation 5(2)(a)".

Existing election for ecu or participating currencies
     43.  - (1) An election made by a company under regulation 3 or 4 in relation to - 

shall have effect for the purposes of the 1994 Regulations on and after 1st January 1999 or, if later, the date on which the euro is adopted by the participating member State concerned, as if the election - 

    (2) In paragraph (1) the reference to a currency participating in the euro (or the participating currency) is a reference to the currency of a participating member State which, as a result of the adoption of the euro by that member State, is replaced by the euro but continues to exist as a legal sub-unit of the euro.

Treatment of existing part trade elections in participating currencies
     44.  - (1) Where prior to 1st January 1999, or, if later, prior to the date on which the euro is adopted by the participating member State concerned - 

the elections shall be treated on and after 1st January 1999 or, as the case may be, the later date referred to above, for the purposes of the 1994 Regulations, as if they together constituted a single election for the euro as well as for the participating currency concerned under regulation 3 in respect of the whole of the company's trade.

    (2) Where prior to 1st January 1999 or, if later, prior to the date on which the euro is adopted by the participating member State concerned - 

all the elections referred to in sub-paragraph (b) shall be treated on and after 1st January 1999 or, as the case may be, the later date referred to above, for the purposes of the 1994 Regulations, as if they together constituted a single election for the euro as well as for the participating currency concerned under regulation 4 in respect of part of the company's trade.

Election for whole trade where part trade election already exists
     45. For regulation 3(2) there shall be substituted - 

Determination of rate of exchange where part trade election replaced by whole trade election or combined part trade election
     46. In regulation 8 - 

Part trade elections for new part trades
     47. In regulation 9 after paragraph (3) there shall be added - 


Jane Kennedy

David Jamieson
Two of the Lords Commissioners of Her Majesty's Treasury

17th December 1998


EXPLANATORY NOTE

(This note is not part of the Regulations)


These Regulations modify the application of provisions of the Taxes Acts so as to cater for the proposed adoption of the single currency ("the euro") by member States other than the United Kingdom from 1st January 1999 in accordance with the Treaty establishing the European Community.

The Regulations are in a number of Parts of which Part I, comprising regulations 1 to 3, is introductory.

Part II (regulations 4 to 6) adapts provisions of the Income and Corporation Taxes Act 1988 ("the 1988 Act") so as to provide for the deduction by companies for tax purposes of the costs of redenominating shares and securities in euro.

Part III (regulations 7 to 12) adapts provisions in Finance Acts relating to exchange gains and losses, interest rate and currency contracts and debt contracts, and relevant discounted securities, so as to deal with the introduction of the euro.

Part IV (regulations 13 to 19) makes similar provision in relation to agreements for the sale and repurchase of securities and Part V (comprising regulations 20 to 23) makes similar provision in relation to stock lending.

Part VI (regulations 24 to 30) adapts provisions relating to stamp duty and stamp duty reserve tax in connection with the sale and repurchase of securities and stock lending.

Part VII (regulations 31 to 35) adapts provisions relating to the accrued income scheme.

Part VIII (regulations 36 to 39) adapts provisions of the Taxation of Chargeable Gains Act 1992.

Part IX (regulation 40) adapts a provision of the controlled foreign companies legislation (section 747A of the 1988 Act).

Part X (regulations 41 to 47) adapts the Local Currency Elections Regulations 1994.

Notes:

 [19] Section 710 was amended by paragraph 2 of Schedule 10 to the Finance Act 1991, paragraph 14(36) of Schedule 10 to the Taxation of Chargeable Gains Act 1992, paragraph 5 of Schedule 8 to the Finance (No. 2) Act 1992 (c.48), and section 87(5) of the Finance Act 1995.back

[20] Section 132(3)(a) was amended by section 88(2) of the Finance Act 1997.back

[21] Section 747A was inserted by paragraph 2 of Schedule 25 to the Finance Act 1995 and amended by paragraph 1 of Schedule 36, and Part V(34) of Schedule 41, to the Finance Act 1996 and by paragraph 2 of Schedule 17 to the Finance Act 1998.back

[22] S.I. 1994/3230.back


ISBN 0 11 080339 6


 
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