The Exchange Gains and Losses (Excess Gains and Losses) Regulations 1994

Cancellation of relief where loss is recovered

3.—(1) Where—

(a) by virtue of regulation 2(1) an initial exchange loss has been treated as accruing to a company (“the loss making company”) as respects an asset or liability by reason of a non-exchange loss accruing as respects that asset or liability, and

(b) the whole or part of that non-exchange loss is subsequently recovered by the loss making company, or by another company in the same group, in an accounting period of the loss making company,

an initial exchange gain equal in amount to the amount of the net exchange loss found in accordance with paragraphs (3) and (4) below shall be deemed to accrue to the loss making company.

• For the purposes of this paragraph, companies are members of a group if by virtue of section 170 of the Taxation of Chargeable Gains Act 1992(1) they are members of a group for the purposes of sections 171 to 181 of that Act.

(2) Any initial exchange gain deemed to accrue under paragraph (1) above shall—

(a) if the initial exchange loss referred to above was an exchange loss of a trade or part of a trade and the loss making company carries on that trade or part at the time of the recovery, be deemed to be an exchange gain of that trade or part, and section 128 of the 1993 Act shall apply accordingly,

(b) if sub-paragraph (a) above does not apply, be deemed to a non-trading exchange gain, and section 129 of the 1993 Act shall apply accordingly,

and in either case the gain shall be deemed to accrue as respects the asset or liability for an accrual period identical to the accounting period in which the time of recovery falls.

(3) For the purposes of paragraph (1) above the net exchange loss shall (subject to paragraph (4) below) be equal to the excess (if any) of

Aover(B - C)

where—

• A is the amount of the loss recovered, translated into the company’s local currency (if it is not in that currency) using the London closing exchange rates for the two currencies for the date of the recovery,

• B is the amount of the non-exchange loss referred to in paragraph (1) above, and

• C is the amount of the initial exchange loss deemed to accrue to the company by virtue of regulation 2(1).

(4) Where parts of the loss are recovered at different times, then in relation to any recovery after the first—

(a) amount A shall include any amount recovered earlier;

(b) the net exchange loss found in accordance with paragraph (3) above shall be reduced by the amount (or aggregate amount, if more than one) of any initial exchange gain deemed to accrue (under paragraph (1) above) in relation to any earlier recovery.

(1)

1992 c. 12. Section 170 was amended by paragraph 5 of Schedule 6 to the Finance (No. 2) Act 1992 (c. 48).