Finance Act 1993 (c. 34)

(The document as of February, 2008)

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(1) Subject to the following provisions of this section, the local currency for the purposes of sections 125 to 127 above is sterling.

(2) Subsections (4) to (6) below apply where--

(a) at any time in an accrual period an asset or contract was held, or a liability was owed, by a qualifying company for the purposes of a trade or trades carried on by it or of part or parts of a trade or trades carried on by it, and

(b) the local currency of any such trade or part for the relevant accounting period is a currency other than sterling.

(3) References in this section to the relevant accounting period are to the accounting period which constitutes the accrual period or in which the accrual period falls.

(4) If throughout the accrual period the asset or contract was held, or the liability was owed, by the company solely for trading purposes and only one local currency is involved, sections 125 to 128 above shall be applied by reference to that currency.

(5) If throughout the accrual period the asset or contract was held, or the liability was owed, by the company solely for trading purposes and more than one local currency is involved, sections 125 to 128 above shall be applied separately by reference to each local currency involved and any exchange gain or loss of a trade or part shall be ignored unless found in the currency which is the local currency of the trade or part for the relevant accounting period.

(6) In any other case--

(a) sections 125 to 128 above shall be applied by reference to sterling and sections 129 to 133 above shall be applied to any non-trading exchange gain or loss;

(b) sections 125 to 128 above shall then be applied separately by reference to each local currency involved (other than sterling);

(c) any exchange gain or loss of a trade or part shall be ignored unless found in the currency which is the local currency of the trade or part for the relevant accounting period (whether sterling or otherwise).

(7) 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.

Exchange rate to be used

150 Exchange rate at translation times

(1) This section has effect to determine the exchange rate to be used in finding for the purposes of this Chapter the local currency equivalent at a translation time of--

(a) the basic valuation of an asset or liability,

(b) the nominal amount of a debt outstanding, or

(2) References in this section to the two currencies are to--

(a) the local currency and the nominal currency of the asset or liability concerned (where this section applies by virtue of subsection (1)(a) or (1)(b) above), or

(b) the local currency and the currency mentioned in subsection (1)(c) above (where this section applies by virtue of subsection (1)(c) above).

(3) References in this section to an arm's length rate are to such exchange rate for the two currencies as might reasonably be expected to be agreed between persons dealing at arm's length.

(4) Subsections (5) to (7) below apply where the translation time is a translation time solely by virtue of an accounting period of the company coming to an end.

(5) In a case where--

(a) an exchange rate for the two currencies is used (as regards the asset, liability or currency contract concerned) in the accounts of the company for the last day of the accounting period, and

(b) the rate is an arm's length rate,

that is the exchange rate to be used as regards the asset, liability or contract.

(6) In a case where--

(a) the provision for whose purposes the local currency equivalent falls to be found is section 126 above,

(b) an exchange rate for the two currencies is not used (as regards the currency contract concerned) in the accounts of the company for the last day of the accounting period,

(d) the exchange rate for the two currencies that is implied by the currency contract concerned is an arm's length rate,

the exchange rate mentioned in paragraph (d) above is the exchange rate to be used as regards the contract.

(7) In a case where neither subsection (5) nor subsection (6) above applies, the London closing exchange rate for the two currencies for the last day of the accounting period is the exchange rate to be used.

(8) Subsections (9) to (14) below apply where the translation time is a translation time otherwise than solely by virtue of an accounting period of the company coming to an end.

(9) In a case where--

(a) an exchange rate for the two currencies is used (as regards the asset, liability or currency contract concerned) in the accounts of the company at the translation time,

(b) the rate represents the average of arm's length rates for all the days falling within a period, and

(c) the arm's length rate for any given day (other than the first) falling within the period is not significantly different from the arm's length rate for the day preceding the given day,

that is the exchange rate to be used as regards the asset, liability or contract.

(10) In a case where--

(a) subsection (9) above does not apply,

(b) an exchange rate for the two currencies is used (as regards the asset, liability or currency contract concerned) in the accounts of the company at the translation time, and

that is the exchange rate to be used as regards the asset, liability or contract.

(11) In a case where--

(a) the provision for whose purposes the local currency equivalent falls to be found is section 126 above,

(b) an exchange rate for the two currencies is not used (as regards the currency contract concerned) in the accounts of the company at the translation time,

(d) the exchange rate for the two currencies that is implied by the currency contract concerned is an arm's length rate,

the exchange rate mentioned in paragraph (d) above is the exchange rate to be used as regards the contract.

(12) In a case where--

(a) none of subsections (9) to (11) above applies,

(b) it is the company's normal practice, when using an exchange rate in its accounts, to use a rate which represents an average of exchange rates obtaining for a period, and

(c) the London closing exchange rate for the two currencies for any given day (other than the first) falling within the relevant period is not significantly different from the London closing exchange rate for the two currencies for the day preceding the given day,

the rate which represents the average of the London closing exchange rates for the currencies for all the days falling within the relevant period is the exchange rate to be used.

(13) In a case where none of subsections (9) to (12) above applies, the London closing exchange rate for the day in which the translation time falls is the exchange rate to be used.

(14) References in subsection (12) above to the relevant period are to the period which--

(a) begins when the relevant accounting period begins, and

(b) ends at the end of the day in which the translation time falls;

and the relevant accounting period is the accounting period in which the translation time falls.

151 Exchange rate for debts whose amounts vary

(1) Subsection (2) below has effect to determine the exchange rate to be used in finding for the purposes of this Chapter the local currency equivalent, at a time immediately after the nominal amount of a debt outstanding increases or decreases, of any amount.

(2) Subsections (9) to (14) of section 150 above (ignoring subsection (11)) shall apply for that purpose, but in so applying them--

(a) references to the translation time shall be construed as references to the time mentioned in subsection (1) above;

(b) references to the two currencies shall be construed as references to the local currency and the settlement currency of the debt.

Interpretation: companies

152 Qualifying companies

(1) Subject to the following provisions of this section, any company is a qualifying company.

(2) A company established for charitable purposes only is not a qualifying company.

(3) Where a unit trust scheme is an authorised unit trust as respects an accounting period the trustees (who are deemed to be a company for certain purposes by section 468(1) of the Taxes Act 1988) are not a qualifying company as regards that period.

(4) A company which is approved for the purposes of section 842 of the Taxes Act 1988 (investment trusts) for an accounting period is not a qualifying company as regards that period.

(5) In this section--

"unit trust scheme" has the same meaning as in section 469 of the Taxes Act 1988;
"authorised unit trust" has the same meaning as in section 468 of that Act.

Interpretation: assets, liabilities and contracts

153 Qualifying assets and liabilities

(1) As regards a qualifying company, each of the following is a qualifying asset--

(a) a right to settlement under a qualifying debt (whether or not the debt is a debt on a security);

(b) a unit of currency;

but paragraph (a) above shall have effect subject to subsections (3) and (4) below.

(2) As regards a qualifying company, each of the following is a qualifying liability--

(a) a duty to settle under a qualifying debt (whether or not the debt is a debt on a security);

(b) a liability that takes the form of a provision made by the company in respect of a duty to which it may become subject and which (if it were to become subject to it) would be a duty to settle under a qualifying debt;

(c) a duty to transfer a right to settlement under a qualifying debt on a security, where the duty subsists under a contract and the company is not entitled to the right;

(d) a duty to transfer a share or shares, where the duty subsists under a contract and the company is not entitled to the share or shares;

but paragraphs (a) to (d) above shall have effect subject to subsections (5) to (9) below.

(3) A right to settlement under a qualifying debt is not a qualifying asset if it is a right under a currency contract.

(4) A right to settlement under a qualifying debt is not a qualifying asset if the debt is a debt on a security which under the terms of issue can be converted into or exchanged for a share or shares; but the preceding provisions of this subsection do not apply if the security is a deep gain security or the right is held in qualifying circumstances.

(5) A duty to settle under a qualifying debt is not a qualifying liability if it is a duty under a currency contract.

(6) A duty to settle under a qualifying debt is not a qualifying liability if the debt is a debt on a security which under the terms of issue can be converted into or exchanged for a share or shares; but the preceding provisions of this subsection do not apply if the security is a deep gain security.

(7) A liability falling within subsection (2)(b) above is not a qualifying liability unless--

(a) the duty to settle would (if the company were to become subject to it) be owed for the purposes of a trade, and

(b) the provision falls to be taken into account (apart from this Chapter) in computing the profits or losses of the trade for corporation tax purposes.

(8) A duty falling within subsection (2)(c) above is not a qualifying liability unless the right would be a qualifying asset if the company were entitled to it.

(9) A duty falling within subsection (2)(d) above is not a qualifying liability unless the share (or each of the shares) would be a qualifying asset if the company were entitled to it.

(10) For the purposes of this section each of the following is a qualifying debt--

(a) a debt falling to be settled by the payment of money;

(b) a debt falling to be settled by the transfer of a right to settlement under another debt, itself falling to be settled by the payment of money;

and for the purposes of this subsection an ecu shall be regarded as money.

(11) For the purposes of subsections (1)(c) and (4) above qualifying circumstances, in relation to an asset consisting of a share or a right to settlement, are circumstances where the qualifying company carries on a trade and--

(a) if the company were to transfer the asset, the transfer would fall to be taken into account (apart from this Chapter) in computing the profits or losses of the trade for corporation tax purposes, and

(b) if the asset were held by the company at the end of an accounting period, the valuation of the asset to be shown in the company's accounts for that time would fall to be found by taking the local currency equivalent at that time of the valuation put on the asset by the company (whether at that time or earlier) expressed in the nominal currency of the asset;

and the reference here to the local currency is to the local currency of the trade for the accounting period.

(12) Interest accrued in respect of a debt shall not be treated as part of the debt.

154 Definitions connected with assets

(1) Subject to the following provisions of this section, a company becomes entitled to an asset when it becomes unconditionally entitled to it.

(2) In determining whether or not a company is unconditionally entitled to an asset, any transfer by way of security of the asset or of any interest or right in or over the asset shall be ignored.

(3) Where a company agrees to acquire an asset by transfer it becomes entitled to it when the contract is made and not on a later transfer made pursuant to the contract; but the preceding provisions of this subsection do not apply where the agreement is by way of a currency contract.

(4) Where a company agrees to dispose of an asset by transfer it ceases to be entitled to it when the contract is made and not on a later transfer made pursuant to the contract.

(5) If a contract is conditional (whether on the exercise of an option or otherwise) for the purposes of subsections (3) and (4) above it is made when the condition is satisfied.

(6) Where a company ceases to be entitled to an asset and at a later time becomes entitled to the same asset, with effect from the later time the asset shall be treated as if it were a different asset.

(7) In a case where--

(a) at different times a company becomes entitled to rights to settlement under debts on securities, and

(b) the rights are of the same kind,

the rights shall be treated as different assets and not part of the same asset.

(8) Whether a transaction involves a company becoming entitled to--

(a) one asset consisting of a right to settlement under a debt on a security, or

(b) a number of such assets,

shall be determined according to the facts of the case concerned.

(9) For the purpose of deciding whether rights to settlement under debts on securities of a particular kind are held by a company, rights of that kind acquired earlier shall be treated as disposed of before rights of that kind acquired later; and references here to acquisition and disposal are references to becoming entitled and ceasing to be entitled.

(10) For the purpose of deciding whether shares of a particular kind are held by a company, shares of that kind acquired earlier shall be treated as disposed of before shares of that kind acquired later; and references here to acquisition and disposal are references to becoming entitled and ceasing to be entitled.

(11) In a case where--

(a) a rule is used for the purpose mentioned in subsection (9) or (10) above when the company's accounts are prepared,

(b) the rule differs from that contained in the subsection, and

the rule used when the accounts are prepared (and not the rule in the subsection) shall be used for the purpose.

(12) In a case where--

(a) a company would (apart from this subsection) become entitled to an asset at a particular time (the later time) by virtue of the preceding provisions of this section,

(b) the asset falls within section 153(1)(a) above,

(c) the time at which the company, in drawing up its accounts, regards itself as becoming entitled to the asset is a time (the earlier time) earlier than the later time, and

(d) the accounts are drawn up in accordance with normal accountancy practice,

the company shall be taken to have become entitled to the asset at the earlier time and not at the later time.

(13) Where subsection (12) above applies, as regards any time beginning with the earlier time and ending immediately before the later time the nominal amount of the debt shall be taken to be--

(a) such amount as the company treats as the nominal amount in its accounts, or

(b) such amount as it would so treat in accordance with normal accountancy practice (if that amount is different from the amount found under paragraph (a) above).

(14) A company holds an asset at a particular time if it is entitled to it at that time.

155 Definitions connected with liabilities

(1) Subject to the following provisions of this section, a company becomes subject to a liability falling within section 153(2)(a) above when it becomes unconditionally subject to it.

(2) Where a company agrees to acquire a liability falling within section 153(2)(a) above by transfer it becomes subject to it when the contract is made and not on a later transfer made pursuant to the contract.

(3) Where a company agrees to dispose of a liability falling within section 153(2)(a) above by transfer it ceases to be subject to it when the contract is made and not on a later transfer made pursuant to the contract.

(4) If a contract is conditional (whether on the exercise of an option or otherwise) for the purposes of subsections (2) and (3) above it is made when the condition is satisfied.

(5) Where a company ceases to be subject to a liability falling within section 153(2)(a) above and at a later time becomes subject to the same liability, with effect from the later time the liability shall be treated as if it were a different liability.

(6) A company becomes subject to a liability falling within section 153(2)(b) above at the time with effect from which it makes the provision.

(7) A company ceases to be subject to a liability falling within section 153(2)(b) above at the time with effect from which it deletes the provision or (if different) the time with effect from which it would delete the provision under normal accountancy practice.

(8) Where a company makes a provision falling within section 153(2)(b) above and later changes the amount, the company shall be treated as--

(a) deleting (with effect from the time when the change becomes effective) the provision representing the amount before the change, and

(b) making (with effect from that time) a new provision representing the amount as changed;

and so on for further changes.

(9) A company ceases to be subject to a liability falling within section 153(2)(c) above when it becomes entitled to the right concerned, unless it ceases to be subject to the liability earlier apart from this subsection.

(10) A company ceases to be subject to a liability falling within section 153(2)(d) above when it becomes entitled to the share or shares, unless it ceases to be subject to the liability earlier apart from this subsection.

(11) In a case where--

(a) a company would (apart from this subsection) become subject to a liability at a particular time (the later time) by virtue of the preceding provisions of this section,

(b) the liability falls within section 153(2)(a) above,

(c) the time at which the company, in drawing up its accounts, regards itself as becoming subject to the liability is a time (the earlier time) earlier than the later time, and

(d) the accounts are drawn up in accordance with normal accountancy practice,

the company shall be taken to have become subject to the liability at the earlier time and not at the later time.

(12) Where subsection (11) above applies, as regards any time beginning with the earlier time and ending immediately before the later time the nominal amount of the debt shall be taken to be--

(a) such amount as the company treats as the nominal amount in its accounts, or

(b) such amount as it would so treat in accordance with normal accountancy practice (if that amount is different from the amount found under paragraph (a) above).

(13) A company owes a liability at a particular time if it is subject to it at that time.

156 Assets and liabilities: other matters

(1) Each of the following questions shall be determined according to the facts of the case concerned--

(a) whether a transaction (or series of transactions) involves the creation of one asset consisting of a right to settlement under a debt or a number of assets consisting of a number of such rights;

(b) whether a transaction (or series of transactions) involves the creation of one liability consisting of a duty to settle under a debt or a number of liabilities consisting of a number of such duties;

(c) whether a transaction (or series of transactions) involves the creation of both an asset (or assets) held and a liability (or liabilities) owed by the same company.

(2) Subsection (3) below applies where--

(a) a company, in drawing up its accounts, regards itself as becoming entitled or subject to an asset or liability at a particular time,

(b) the company, in drawing up its accounts, regards itself as ceasing to be entitled or subject to the asset or liability at a later time,

(c) at the time mentioned in paragraph (a) above it could reasonably be expected that the company would become entitled or subject to such an asset or liability,

(d) the asset or liability does not in fact come into existence before the later time but (if it did) it would fall within section 153(1)(a) or (2)(a) above, and

(e) the accounts are drawn up in accordance with normal accountancy practice.

(3) The company shall be taken to--

(a) become entitled or subject to such an asset or liability at the time it regards itself as becoming so entitled or subject, and

(b) cease to be entitled or subject to such an asset or liability at the time it regards itself as ceasing to be so entitled or subject.

(4) Where subsection (3) above applies, as regards any time beginning with the time mentioned in subsection (3)(a) and ending with the time mentioned in subsection (3)(b) the nominal amount of the debt shall be taken to be--

(a) such amount as the company treats as the nominal amount in its accounts, or

(b) such amount as it would so treat in accordance with normal accountancy practice (if that amount is different from the amount found under paragraph (a) above).

157 Definitions connected with currency contracts

(1) A company becomes entitled to rights and subject to duties under a currency contract when it enters into the contract.

(2) A company holds a currency contract at a particular time if it is then entitled to rights and subject to duties under the contract; and it is immaterial when the rights and duties fall to be exercised and performed.

Interpretation: other provisions

158 Translation times and accrual periods

(1) Where a qualifying company holds a qualifying asset the following are translation times as regards the asset--

(a) the time immediately after the company becomes entitled to the asset;

(b) the time immediately before the company ceases to be entitled to the asset;

(c) any time which is a time when an accounting period of the company ends and which falls after the time mentioned in paragraph (a) above and before the time mentioned in paragraph (b) above.

(2) Where a qualifying company owes a qualifying liability the following are translation times as regards the liability--

(a) the time immediately after the company becomes subject to the liability;

(b) the time immediately before the company ceases to be subject to the liability;

(c) any time which is a time when an accounting period of the company ends and which falls after the time mentioned in paragraph (a) above and before the time mentioned in paragraph (b) above.

(3) Where a qualifying company enters into a currency contract the following are translation times as regards the contract--

(a) the time immediately after the company becomes entitled to rights and subject to duties under the contract;

(b) the time immediately before the company ceases to be entitled to those rights and subject to those duties;

(c) any time which is a time when an accounting period of the company ends and which falls after the time mentioned in paragraph (a) above and before the time mentioned in paragraph (b) above.

(4) As regards a qualifying asset, a qualifying liability or a currency contract an accrual period is a period which--

(a) begins with a time which is a translation time (other than the last to fall) as regards the asset, liability or contract, and

(b) ends with the time which is the next translation time to fall as regards the asset, liability or contract.

159 Basic valuation

(1) Subject to the following provisions of this section, the basic valuation of an asset or liability is--

(a) such valuation as the company puts on it with regard to the time immediately after the company becomes entitled or subject to it, or

(b) such valuation as the company would put on it with regard to that time under normal accountancy practice, if that valuation is different from that found under paragraph (a) above.

(2) Where (apart from this subsection) the valuation under subsection (1) above would be in a currency (the actual currency) other than the nominal currency, it shall be taken to be the equivalent, expressed in terms of the nominal currency, of the valuation in the actual currency; and the translation required by this subsection shall be made by reference to the London closing exchange rate for the two currencies concerned for the day in which the time mentioned in subsection (1) above falls.

(3) The basic valuation of a liability falling within section 153(2)(c) or (d) above is the consideration for the company becoming subject to the liability; and any consideration or part that is not pecuniary shall be taken to be equal to its open market value--

(a) found at the time when the company becomes subject to the liability, and

(b) if part of the consideration is pecuniary, expressed in the same currency as that part.

(4) Where (apart from this subsection) the valuation under subsection (3) above would be in a currency (the actual currency) other than the nominal currency, it shall be taken to be the equivalent, expressed in terms of the nominal currency, of the valuation in the actual currency; and the translation required by this subsection shall be made by reference to the London closing exchange rate for the two currencies concerned for the day on which the company becomes subject to the liability.

(5) Subsections (6) to (9) below apply where--

(a) the company becomes entitled to a right to settlement under a qualifying debt on a security, and

(b) the circumstances are such that section 713(2)(b) or (3)(b) of the Taxes Act 1988 applies (transferee treated as entitled under accrued income scheme to relief or a sum found in sterling).

(6) In such a case the basic valuation of the right shall be found by taking the consideration for the company becoming entitled to the right and--

(a) subtracting such of the amount found under section 713(2)(b) as is attributable to the right, or

(b) adding such of the amount found under section 713(3)(b) as is attributable to the right;

and any apportionment of consideration or of the amount found under section 713(2)(b) or (3)(b) shall be made on a just and reasonable basis.

(7) The following rules apply for the purposes of subsection (6) above--

(a) any consideration or part that is pecuniary shall be expressed in sterling (if not otherwise so expressed);

(b) any consideration or part that is not pecuniary shall be taken to be equal to its open market value, found at the time when the company becomes entitled to the right and expressed in sterling.

(8) Where the nominal currency of the right mentioned in subsection (5) above is not sterling, the valuation found in sterling under subsection (6) above shall be taken to be its equivalent expressed in terms of the nominal currency.

(9) Any translation required by subsection (7) or (8) above shall be made by reference to the London closing exchange rate for the currencies concerned for the day on which the company becomes entitled to the right.

(10) Subsections (11) and (12) below apply where--

(a) section 127 above applies as regards an asset or liability for an accrual period (the earlier period), and

(b) section 125 or 127 above applies as regards the asset or liability for the next accrual period (the later period).

(11) As regards the later period the basic valuation of the asset or liability shall be taken to be--

(a) the nominal amount of the debt outstanding immediately before the beginning of the later period, or

(b) if section 127(7) above also applies as regards the earlier period, the amount found under section 127(10) for that period.

(12) As regards an accrual period which falls after the later period the basic valuation of the asset or liability shall be the amount found under subsection (11) above, subject to any subsequent application of that subsection.

160 Nominal currency of assets and liabilities

(1) As regards an asset mentioned in section 153(1)(a) above, or a liability mentioned in section 153(2)(a) or (b) or (c) above, the nominal currency is the settlement currency of the debt mentioned in the paragraph concerned.

(2) As regards an asset mentioned in section 153(1)(b) above, the nominal currency is the currency concerned.

(3) As regards an asset mentioned in section 153(1)(c) above, the nominal currency is the currency in which the share is denominated.

(4) As regards a liability mentioned in section 153(2)(d) above, the nominal currency is the currency in which the share is (or shares are) denominated.

161 Settlement currency of a debt

(1) Subject to the following provisions of this section, the settlement currency of a debt is the currency in which ultimate settlement of the debt falls to be made.

(2) In a case where--

(a) ultimate settlement of a debt falls to be made in a particular currency, but

(b) the amount of the currency falls to be determined by reference to the value at any time of an asset consisting of or denominated in another currency,

the settlement currency of the debt is the other currency.

(3) As regards a debt mentioned in section 153(2)(b) above, and as regards a case where section 156(3) above applies, in subsections (1) and (2) above "falls" (in each place) shall be read as "would fall".

(4) Where the settlement currency of a debt cannot be determined under subsections (1) to (3) above, the settlement currency of the debt is the currency that can reasonably be regarded as the most appropriate--

(a) deeming the state of affairs at settlement to be the same as the state of affairs at the material time, and

(b) having regard to subsections (1) to (3) above;

and the material time is the time immediately after the company becomes entitled to the asset mentioned in section 153(1)(a) above or subject to the liability mentioned in section 153(2)(a) or (b) or (c) above.

(5) For the purposes of this section the ecu shall be regarded as a currency.

162 Nominal amount of a debt

(1) The nominal amount of a debt outstanding at any time is the amount of the debt outstanding at that time, expressed in terms of the settlement currency of the debt.

(2) In a case where--

(a) a payment or repayment is made at any time in a currency other than the settlement currency of a debt, and

(b) it falls to be decided whether there is in consequence an increase or decrease in the nominal amount of the debt outstanding,

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