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 M1Insurance 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 M2Taxation 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.
F1 Currency contracts: matching
F24A
(1)
Regulations may provide that where—
(a)
as regards a contract an initial exchange gain or initial exchange loss accrues to a company for an accrual period under section 126(5) of this Act or would so accrue apart from regulations under this Schedule,
(b)
the relevant duty 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
(c)
an election is made in accordance with the regulations to match the duty 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 reference in sub-paragraph (1) above to the relevant duty is to the duty to which, under the contract, the company becomes subject as regards the second currency (within the meaning given by section 126 of this Act).
(4)
Where regulations are made under this paragraph, sub-paragraphs (3) to (12) of paragraph 4 above shall apply as they apply where regulations are made under that paragraph; but in the application of those sub-paragraphs by virtue of this sub-paragraph—
(a)
the references to a liability in sub-paragraphs (3), (4), (9) and (11) shall be construed as references to a duty,
(b)
the references to liabilities in sub-paragraphs (3) and (4) shall be construed as references to duties, and
(c)
the reference in sub-paragraph (11)(a) to sub-paragraph (1) of paragraph 4 shall be construed as a reference to sub-paragraph (1) above.
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).
F35A
(1)
This paragraph applies where regulations under both paragraph 2 and paragraph 4A above apply—
(a)
as regards the same contract, 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 either 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).