Finance Act 1993

137 Arm’s length test: currency contracts

(1) Subsection (2) below applies where—

(a) a qualifying company enters into a currency contract,

(b) the contract would not have been entered into at all if the parties to it had been dealing at arm’s length, or the contract’s terms would have been different if they had been so dealing,

(c) as regards the contract an exchange loss accrues to the company for an accrual period (or would so accrue apart from this section), and

(d) the Board direct that subsection (2) below shall apply;

and any reference in this section to an exchange loss is to an exchange loss of a trade or an exchange loss of part of a trade or a non-trading exchange loss.

(2) The exchange loss shall be treated as not accruing to the company for the accrual period.

(3) Where subsection (2) above applies and the accrual period is not the last to occur as regards the contract while it is held by the company—

(a) an amount equal to the amount of the loss shall be set off against appropriate exchange gains accruing to the company as regards the contract for subsequent accrual periods, and

(b) any such gain shall then be treated as reduced by that amount or by so much of it as cannot be set off under this subsection against any such gain accruing for an earlier accrual period;

and an appropriate exchange gain is an exchange gain of the trade concerned (if the exchange loss is an exchange loss of a trade) or an exchange gain of the part of the trade concerned (if the exchange loss is an exchange loss of part of a trade) or a non-trading exchange gain (if the exchange loss is a non-trading exchange loss).

(4) In applying subsection (1)(b) above all factors shall be taken into account including any currency that would have been involved and any amounts that would have been involved.