SCHEDULES

SCHEDULE 23Exchange gains and losses from loan relationships etc

Part 2Amendments of other legislation

The Income and Corporation Taxes Act 1988

Charges on income

17

(1)

Section 494 of the Taxes Act 1988 is amended in accordance with the following provisions of this paragraph.

(2)

Subsection (2) (debits not to be brought into account in a manner which results in the reduction of what would otherwise be the company’s ring fence profits, except as provided in the subsequent paragraphs) is amended as follows.

(3)

In paragraph (c) (debits in respect of a deemed loan relationship)—

(a)

for “a loan relationship deemed to exist for the purposes of section 100 of that Act,” substitute “ a relationship to which section 100 of that Act applies, ”;

(b)

after “to the extent that” insert “ (i) ”; and

(c)

after “above;” insert“or

(ii)

the exchange loss arising from that relationship is in respect of a money debt on which the interest payable (if any) is, or would be, such expenditure;

as the case may be; ”.

(4)

In paragraph (d) (debits in respect of debtor relationship which is creditor relationship of associated company)—

(a)

for “in the case of debits” substitute “ in the case of a net debit for an accounting period ”; and

(b)

for “the debit”, in both places where occurring, substitute “ the net debit ”.

(5)

In the second sentence of that subsection (interpretation) for “any loan relationship deemed to exist for the purposes of section 100 of that Act” substitute “ any relationship to which section 100 of that Act applies ”.

(6)

After the second sentence insert the following as a third sentence—

“For the purposes of paragraph (d) above, the net debit for an accounting period in respect of a debtor relationship of a company is the amount if any by which—

(i)

the aggregate of the debits for the period in respect of the relationship, exceeds

(ii)

the credits in respect of exchange gains arising from the relationship for the period.”.

(7)

After subsection (2) insert—

“(2ZA)

Credits in respect of exchange gains from a company’s loan relationships shall not be brought into account for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 in respect of any loan relationship of a company in any manner that results in an increase of what would otherwise be the company’s ring fence profits, except to the extent that, if the credit had been a debit in respect of an exchange loss from the relationship, it would have been brought into account by virtue of any of paragraphs (a) to (c) of subsection (2) above.”.

(8)

In subsection (2A) (debits prevented from reducing ring fence profits by subsection (2) to be brought into account for purposes of Chapter 2 of Part 4 of Finance Act 1996 (c. 8) as non-trading debits)—

(a)

after “Where any debit” insert “ or credit ”;

(b)

in paragraph (b)—

(i)

after “in accordance with subsection (2)” insert “ or (2ZA) ”; and

(ii)

after “reduction” insert “ or, as the case may be, increase ”; and

(c)

in the closing words—

(i)

after “that debit” insert “ or credit ”; and

(ii)

after “non-trading debit” insert “ or, as the case may be, non-trading credit ”.

(9)

After subsection (2A) insert—

“(2B)

Where, in accordance with subsection (2) above, any proportion (including the whole) of a net debit, within the meaning of paragraph (d) of that subsection, cannot be brought into account in a manner that results in any reduction of what would otherwise be the company’s ring fence profits, subsection (2A) above shall apply—

(a)

separately in relation to that proportion of each of the debits and each of the credits brought into account in determining the amount of the net debit, and

(b)

on the assumption that that proportion of each of those debits and credits falls within paragraph (b) of that subsection.”.