Finance Act 1993 (c. 34)

(The document as of February, 2008)

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Section 134.

SCHEDULE 15 Exchange gains and losses: alternative calculation

Introduction

1 (1) This paragraph applies where regulations under this Schedule provide that the amount of an initial exchange gain or initial exchange loss accruing to a company as regards an asset, liability or contract for an accrual period shall be found in accordance with the alternative method of calculation.

(2) In such a case the amount shall not be found in accordance with section 125(2) or (4) of this Act or section 126(3) or (5) or section 127(3) or (4) (as the case may be) but shall be found by--

(a) taking the accrued amount for each day in the accrual period, and

(b) adding the amounts found under paragraph (a) above.

(3) Subject to regulations under this Schedule, the accrued amount for a day in the accrual period shall be found by--

(a) taking the amount of the initial exchange gain or initial exchange loss found in accordance with section 125(2) or (4) of this Act or section 126(3) or (5) or section 127(3) or (4) (as the case may be), and

(b) dividing it by the number of days in the period.

(4) Where an accrual period does not begin at the beginning of a day, the part of the day that falls within the accrual period shall be treated for the purposes of this Schedule as a complete day.

(5) Where an accrual period does not end at the end of a day, the part of the day that falls within the accrual period shall be treated for the purposes of this Schedule as a complete day.

Exempt circumstances

2 (1) Regulations may provide that where--

(a) as regards an asset, liability or contract an initial exchange gain or initial exchange loss accrues to a company for an accrual period under section 125, 126 or 127 of this Act or would so accrue apart from regulations under this Schedule,

(b) at any time on a day in the period the asset or contract was held, or the liability was owed, by the company in exempt circumstances, and

(c) such other conditions as may be prescribed are fulfilled,

the amount of the gain or loss shall be found in accordance with the alternative method of calculation.

(2) Regulations may also provide that as regards any such day as is mentioned in sub-paragraph (1) above the accrued amount shall be ascertained in accordance with prescribed rules.

(3) Regulations may be so framed that the accrued amount as regards a day depends on the extent to which an asset or contract is held, or a liability is owed, in exempt circumstances.

(4) For the purposes of this paragraph an asset or contract 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.

(5) In this paragraph--

• "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.

Unremittable income

3 (1) Regulations may provide that where--

(a) as regards an asset falling within section 153(1)(a) or (b) of this Act an initial exchange gain or initial exchange loss accrues to a company for an accrual period under section 125 or 127 of this Act or would so accrue apart from regulations under this Schedule,

(b) at any time on a day in the period income represented by the asset was unremittable, and

(c) such other conditions as may be prescribed are fulfilled,

the amount of the gain or loss shall be found in accordance with the alternative method of calculation.

(2) Regulations may also provide that as regards any such day as is mentioned in sub-paragraph (1) above the accrued amount shall be ascertained in accordance with prescribed rules.

(3) Regulations may be so framed that the accrued amount as regards a day depends on the extent to which the income represented by an asset is unremittable.

(4) For the purposes of this paragraph income is unremittable if--

(a) in relation to the income, a notice under subsection (2) of section 584 of the Taxes Act 1988 (relief for unremittable overseas income) has been delivered to the inspector in accordance with subsection (6) of that section,

(b) it has been shown to the satisfaction of the Board that the conditions mentioned in paragraphs (a) and (b) of section 584(2) are satisfied with respect to the income, and

(c) those conditions have not ceased to be satisfied with respect to it.

Matched liabilities

4 (1) Regulations may provide that where--

(a) as regards a liability an initial exchange gain or initial exchange loss accrues to a company for an accrual period under section 125 or 127 of this Act or would so accrue apart from regulations under this Schedule,

(b) the liability falls within section 153(2)(a) of this Act,

(c) the liability is eligible to be matched on any day in the accrual period with an asset held by the company, and such other conditions as may be prescribed are fulfilled, and

(d) an election is made in accordance with the regulations to match the liability with the asset on any such day and the election has effect by virtue of the regulations,

the amount of the gain or loss shall be found in accordance with the alternative method of calculation.

(2) Regulations may also provide that as regards any day in respect of which an election has effect the accrued amount shall be ascertained in accordance with prescribed rules.

(3) The question whether a liability is eligible to be matched with an asset shall be determined in accordance with prescribed rules, and in particular regulations may include provision that--

(a) only liabilities of a prescribed description are eligible to be matched with assets;

(b) only assets of a prescribed description are eligible to be matched with liabilities;

(c) liabilities of a prescribed description are eligible to be matched only with assets of a prescribed description.

(4) Regulations may include provision that on any day--

(a) a liability may be partially matched;

(b) an asset may be partially matched;

(c) one asset may be matched with two or more liabilities (wholly or partially);

(d) one liability may be matched with two or more assets (wholly or partially).

(5) Regulations may include provision that an election relating to an asset or assets shall be treated as made in relation to another asset or other assets (as where assets are replaced by others).

(6) Regulations may include provision--

(a) that an election may in prescribed circumstances have effect from a time before it is made;

(b) that an election may be varied;

(c) that an election may not be revoked;

(d) that an election must be made by the company (subject to any provision under sub-paragraph (7) below).

(7) Regulations may provide that where the company is a relevant controlled foreign company an election may be made by a United Kingdom resident company which has (or may be made jointly by United Kingdom resident companies which together have) a majority interest in the company; and--

(a) a company is a relevant controlled foreign company if Chapter IV of Part XVII of the Taxes Act 1988 applies in relation to the accounting period of the company which constitutes the accrual period or in which the accrual period falls;

(b) paragraph 4(3) of Schedule 24 to that Act (majority interest) applies for the purposes of this sub-paragraph.

(8) Regulations may include provision--

(a) that prescribed conditions shall be treated as fulfilled in prescribed circumstances (subject to any provision under paragraph (b) below);

(b) that prescribed conditions shall be treated as not having been fulfilled if the inspector gives notification that he is not satisfied that they are fulfilled;

(c) for an appeal from the inspector's notification;

(d) for a notification to be given to the company or companies making the election.

(9) Regulations may be so framed that the accrued amount as regards a day depends on the extent to which a liability is matched.

(10) Regulations may also provide as mentioned in one or more of the following paragraphs--

(a) that a chargeable gain (or chargeable gains) shall be treated as accruing to a relevant person for the purposes of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992;

(b) that an allowable loss (or allowable losses) shall be treated as accruing to a relevant person for the purposes of that Act;

(c) that the operation of that Act as regards a relevant person shall be otherwise adjusted in accordance with prescribed rules (whether the adjustment results in the incidence of tax on the person being greater or smaller).

(11) For the purposes of sub-paragraph (10) above each of the following is a relevant person--

(a) the company mentioned in sub-paragraph (1) above;

(b) any person who has at any time acquired a matched asset (or part of a matched asset) since the company acquired it;

and a matched asset is an asset which has at any time been to any extent matched with a liability in pursuance of an election.

(12) Regulations may make provision--

(a) as to the occasion on which a chargeable gain or allowable loss mentioned in sub-paragraph (10) above is to be treated as accruing, as to the amount to be treated as the amount of the gain or loss, and as to other matters relating to the gain or loss;

(b) as to the timing and extent of any adjustment mentioned in sub-paragraph (10)(c) above and as to other matters relating to the adjustment.

Combination of circumstances

5 (1) This paragraph applies where regulations under more than one of paragraphs 2 to 4 above apply--

(a) as regards the same asset or liability, and

(b) for the same accrual period.

(2) Regulations may provide that, as regards any day falling within the period and identified in accordance with prescribed rules, the accrued amount shall be ascertained in accordance with rules prescribed under this paragraph (rather than provisions made under any of those paragraphs).

Arm's length test

6 Where regulations make provision under any of paragraphs 2 to 5 above, they may provide that for the purposes of section 136(11) of this Act amounts X and Y shall be found without regard to matters which are prescribed and would otherwise have had to be taken into account under the regulations.

Local currency

7 Where regulations make provision under any of paragraphs 2 to 5 above, section 149 of this Act shall have effect as if the references to sections 125 to 127 included references to this Schedule and the provisions of the regulations.

General

8 Regulations may be so framed that the accrued amount as regards a day is nil (so that, depending on the circumstances, an initial exchange gain or initial exchange loss may be extinguished).

9 Regulations may make different provision about exchange gains (on the one hand) and exchange losses (on the other).

Section 165.

SCHEDULE 16 Exchange gains and losses: transitionals

Introduction

1 For the purposes of this Schedule an existing asset, liability or contract is an asset, liability or contract to which this Chapter applies by virtue of section 165(2) or (3) of this Act or by virtue of regulations under section 165(4) of this Act.

General provision

2 (1) Regulations may make such provision as the Treasury think fit with regard to the application of this Chapter to an existing asset, liability or contract (such as provision for finding the basic valuation of an asset or liability).

(2) Nothing in the following provisions of this Schedule shall prejudice the generality of sub-paragraph (1) above.

Attributed gain or loss

3 (1) Regulations may provide that--

(a) an amount found in accordance with prescribed rules shall be attributed to an existing asset or liability, and

(b) the amount shall be characterised as a gain or loss in accordance with prescribed rules.

(2) The regulations may provide that an attributed gain or loss shall be set off against exchange losses or exchange gains accruing as regards the asset or liability; and for this purpose--

(a) an exchange gain is an exchange gain of a trade or an exchange gain of part of a trade or a non-trading exchange gain;

(b) an exchange loss is an exchange loss of a trade or an exchange loss of part of a trade or a non-trading exchange loss.

(3) The regulations may provide that if an event of a prescribed description occurs as regards the asset or liability at a time falling on or after the commencement day of the company concerned and at a time when all or part of an attributed gain or loss is outstanding--

(a) an initial exchange gain or initial exchange loss of an amount found in accordance with prescribed rules shall be treated as accruing to the company as regards the asset or liability, or

(b) a chargeable gain or allowable loss of an amount found in accordance with prescribed rules shall be treated as accruing to the company as regards the asset or liability for the purposes of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992.

(4) The regulations may provide that where--

(a) apart from provision under this sub-paragraph, an allowable loss would be treated as accruing by virtue of provision made under sub-paragraph (3)(b) above, and

(b) the company concerned makes an election in accordance with prescribed rules,

the loss shall not be treated as accruing and relief of an amount equal to it shall be given to the company in such form and manner as may be prescribed.

(5) The regulations may provide that where provision under this paragraph has effect the outstanding attributed gain or loss shall be treated as reduced or extinguished.

(6) The regulations may make provision--

(a) as to the time when an initial exchange gain or initial exchange loss is to be treated as accruing and as to the extent to which it is to be treated as an exchange gain or loss of a trade or of part of a trade or as a non-trading exchange gain or loss;

(b) as to the occasion on which a chargeable gain or allowable loss is to be treated as accruing;

(c) as to other matters relating to setting off against, or the accrual of, gains or losses as mentioned in this paragraph.

Adjustment of exchange gain or loss

4 (1) Regulations may provide that where an exchange gain or exchange loss accrues to a company as regards an existing asset or liability (or would so accrue apart from the regulations)--

(a) the amount of the gain or loss shall be deemed to be increased in accordance with prescribed rules,

(b) the amount of the gain or loss shall be deemed to be reduced in accordance with prescribed rules, or

(c) the gain or loss shall be deemed not to accrue.

(2) For the purposes of this paragraph--

(a) an exchange gain is an exchange gain of a trade or an exchange gain of part of a trade or a non-trading exchange gain;

(b) an exchange loss is an exchange loss of a trade or an exchange loss of part of a trade or a non-trading exchange loss.

(3) The regulations may be framed by reference to--

(a) exchange differences arising as regards the asset or liability at any time while the company actually holds or owes it (whether any such time falls before, on or after the company's commencement day);

(b) such other factors as the Treasury think fit;

and for this purpose exchange differences are gains and losses attributable to fluctuations in currency exchange rates.

(4) The regulations may include provision designed to prevent provision under them being avoided by the replacement (or partial replacement) of assets or liabilities by other assets or liabilities.

Allowable losses

5 (1) Regulations may provide that where--

(a) an allowable loss of a prescribed description has accrued to a qualifying company for the purposes of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992,

(b) the loss has accrued before the company's commencement day,

(c) all or part of the loss has not been allowed as a deduction under that Act, and

(d) prescribed conditions (whether relating to the making of a claim or otherwise) are fulfilled,

the loss shall be set off against exchange gains accruing to the company.

(2) For the purposes of this paragraph an exchange gain is an exchange gain of a trade or an exchange gain of part of a trade or a non-trading exchange gain.

(3) The regulations may provide that the loss may only be set off--

(a) to the extent that it has not been allowed as a deduction under the Taxation of Chargeable Gains Act 1992;

(b) against exchange gains accruing as regards assets or liabilities of a prescribed description.

(4) The regulations may include rules for ascertaining whether an allowable loss of a prescribed description has or has not been allowed as a deduction under the [1992 c. 12.] Taxation of Chargeable Gains Act 1992.

Miscellaneous

6 (1) Regulations may provide--

(a) that provision under paragraph 3 above or provision under paragraph 4 above or provision under neither of them shall apply in the case of an asset or liability according to the circumstances of the case;

(b) that provision under paragraph 3(3)(a) above or provision under paragraph 3(3)(b) above shall apply in the case of an asset or liability according to the circumstances of the case.

(2) The circumstances may be framed by reference to--

(a) whether, and how, exchange differences arising as regards the asset or liability would be taken into account for tax purposes apart from this Chapter;

(b) such other factors as the Treasury think fit;

and for this purpose exchange differences are gains and losses attributable to fluctuations in currency exchange rates.

Section 169.

SCHEDULE 17 Exchange gains and losses: chargeable gains

Introduction

1 In this Schedule "the 1992 Act" means the [1992 c. 12.] Taxation of Chargeable Gains Act 1992.

Currency

2 (1) In a case where--

(a) there is for the purposes of the 1992 Act a disposal of currency other than sterling by a qualifying company, and

(b) immediately before the disposal the company did not hold the currency in exempt circumstances (within the meaning given by paragraph 3 below),

for the purposes of that Act no chargeable gain or allowable loss shall accrue on the disposal.

(2) This paragraph applies to disposals on or after the company's commencement day.

3 (1) For the purposes of paragraph 2 above a company holds currency in exempt circumstances at a given time if--

(a) the purposes for which it then holds the currency are or include any of the purposes mentioned in sub-paragraph (2) below,

(b) it is a housing association approved at that time for the purposes of section 488 of the Taxes Act 1988, or

(c) it is a self-build society approved at that time for the purposes of section 489 of that Act.

(2) The purposes referred to in sub-paragraph (1)(a) above are--

(a) the purposes of long term insurance business;

(b) the purposes of mutual insurance business;

(c) the purposes of the occupation of commercial woodlands.

(3) In this paragraph--

• "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.

Debts other than securities

4 (1) In a case where--

(a) there is for the purposes of the 1992 Act a disposal of a debt by a qualifying company,

(b) the right to settlement under the debt is a qualifying asset,

(c) the settlement currency of the debt is a currency other than sterling,

(d) immediately before the disposal the company did not hold the debt in exempt circumstances, and

(e) the debt is not a debt on a security,

for the purposes of that Act no chargeable gain or allowable loss shall accrue on the disposal.

(2) Paragraph 3 above applies for the purposes of this paragraph as if references to currency were references to a debt.

(3) This paragraph applies to disposals on or after the company's commencement day.

Debts on securities: disposals

5 (1) In a case where--

(a) a right to settlement under a debt on a security is a qualifying asset,

(b) there is for the purposes of the 1992 Act a disposal of the security by a qualifying company, and

(c) immediately before the disposal the company did not hold the security in exempt circumstances,

in applying section 117 of that Act (qualifying corporate bonds) in relation to the disposal, subsection (1)(b) (corporate bond must be in sterling) shall be ignored.

(2) Sub-paragraph (3) below applies where--

(a) the conditions in sub-paragraph (1)(a) to (c) above are fulfilled, and

(b) the settlement currency of the debt is a currency other than sterling.

(3) In applying section 117 of the 1992 Act in relation to the disposal--

(a) the definition of normal commercial loan for the purposes of subsection (1)(a) shall have effect as if paragraphs (b) and (c) of paragraph 1(5) of Schedule 18 to the Taxes Act 1988 were omitted;

(b) subsection (10) (securities issued within group) shall be ignored.

(4) Paragraph 3 above applies for the purposes of this paragraph as if references to currency were references to a security.

(5) This paragraph applies to disposals on or after the company's commencement day.

Debts on securities: relief

6 (1) This paragraph applies where--

(a) a qualifying company has made a loan,

(b) the debt is a debt on a security, and

(c) the right to settlement under the debt is a qualifying asset.

(2) In applying section 117 of the 1992 Act (qualifying corporate bonds) for the purposes of section 254 of that Act (relief for debts on qualifying corporate bonds) section 117(1)(b) (corporate bond must be in sterling) shall be ignored.

(3) If the settlement currency of the debt is a currency other than sterling, in applying section 117 of that Act for the purposes of section 254 of that Act--

(a) the definition of normal commercial loan for the purposes of section 117(1)(a) shall have effect as if paragraphs (b) and (c) of paragraph 1(5) of Schedule 18 to the Taxes Act 1988 were omitted;

(b) section 117(10) (securities issued within group) shall be ignored.

(4) In applying section 254(6) of that Act in the case of a security which would not be a qualifying corporate bond apart from sub-paragraph (2) or (3) above, the allowable amount shall be found by taking what that amount would be apart from this sub-paragraph and deducting an amount equal to the amount of any exchange loss (or the aggregate amount of any exchange losses) accruing to the company as regards the asset for a period or periods ending on or before the relevant date.

(5) For the purposes of sub-paragraph (4) above--

(a) an exchange loss is an exchange loss of a trade or an exchange loss of part of a trade or a non-trading exchange loss;

(b) the relevant date is the date when the security's value became negligible or the outstanding amount of the principal of the loan was irrecoverable or proved to be irrecoverable (as the case may be).

(6) Where apart from this sub-paragraph the amount of an exchange loss would be an amount expressed in a currency other than the basic currency, it shall be treated for the purposes of this paragraph as the basic currency equivalent on the day the claim is made of the amount so expressed; and the basic currency is the currency in which the allowable amount is expressed.

(7) For the purposes of sub-paragraph (6) above the basic currency equivalent of an amount on a particular day is the basic currency equivalent calculated by reference to the London closing exchange rate for that day.

(8) This paragraph applies to claims made on or after the company's commencement day (whenever the loan was made).

Reconstructions, groups etc.

7 (1) This paragraph applies where there is for the purposes of the 1992 Act a disposal or acquisition of an asset which is--

(a) currency,

(b) a debt which is not a debt on a security and the right to settlement under which is a qualifying asset,

(c) a security (as defined in section 132 of the 1992 Act) where the right to settlement under the debt on the security is a qualifying asset, or

(d) an obligation which by virtue of section 143 of the 1992 Act (futures and options) is regarded as an asset to the disposal of which that Act applies and which is a duty under a currency contract.

(2) In a case where--

(a) the condition mentioned in sub-paragraph (3) below is fulfilled, and

(b) section 139, 171 or 172 of the 1992 Act (reconstructions, groups etc.) would, apart from this paragraph, apply as regards the disposal or acquisition,

the section concerned shall not apply as regards the disposal and the corresponding acquisition or (as the case may be) shall not apply as regards the acquisition and the corresponding disposal.

(3) The condition is that stated in paragraph (a) or (b) below (as the case may be)--

(a) the disposal is by a qualifying company and immediately before the disposal the asset is held wholly for qualifying purposes;

(b) the acquisition is by a qualifying company and immediately after the acquisition the asset is held wholly for qualifying purposes.

(4) For the purposes of this paragraph qualifying purposes are purposes which constitute one or both of the following--

(a) purposes of long term insurance business;

(b) purposes of mutual insurance business;

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