Finance Act 2002

Section 80

SCHEDULE 24 U.K. Corporation tax: currency

Modifications etc. (not altering text)

C1 Sch. 24 extended (retrospective to 30.9.2002) by Finance Act 2003 (c. 14), s. 177(4)(8)(11)

The Finance Act 1993 U.K.

Introductory U.K.

1 The Finance Act 1993 is amended as follows.

The basic rule: sterling to be used U.K.

2 In section 92(1) (which provides that the basic rule is subject to section 93) for “section 93" substitute “ sections 93 and 93A ”.

Use of currency other than sterling: accounts as a whole etc in foreign currency U.K.

3 (1) Section 93 is amended as follows.

(2) In subsection (1) (application of section) for “either the first condition or the second condition" substitute “ the condition in subsection (2) below ”.

(3) In subsection (2) (the first condition), for “The first condition is" substitute “ The condition is ”.

(4) Omit subsection (3) (the second condition, which is superseded by the new section 93A inserted by paragraph 4).

(5) Omit subsection (6) (different parts carried on through different branches, which is superseded by the new section 93A).

(6) In subsection (7) (definitions) omit the definitions of—

(a) “branch"; and

(b) “the closing rate/net investment method".

(7) In subsection (7), in the definition of “the relevant foreign currency" for “the first condition" substitute “ the condition in subsection (2) above ”.

(8) In consequence of the amendments made by this paragraph, the sidenote to the section becomes “Use of currency other than sterling: accounts as a whole etc in foreign currency.".

Use of currency other than sterling: accounts etc partly from statements in foreign currency U.K.

4 After section 93 insert—

“93A Use of other currency: accounts partly from statements in foreign currency

(1) This section applies where in an accounting period a company carries on a business and either the first condition or the second condition is fulfilled.

(2) The first condition is that—

(a) the accounts of the company as a whole are prepared in sterling but, so far as relating to part of the business, they are prepared, using the closing rate/net investment method, from financial statements and records prepared in a currency other than sterling; or

(b) in the case of a company which is not resident in the United Kingdom, the company makes a return of accounts for its branch in the United Kingdom prepared in sterling but, so far as relating to part of the business, it is prepared, using that method, from financial statements and records prepared in a currency other than sterling.

(3) The second condition is that—

(a) the accounts of the company as a whole are prepared in a currency other than sterling (“the first currency”) in accordance with generally accepted accounting practice but, so far as relating to part of the business, they are prepared, using the closing rate/net investment method, from financial statements and records prepared in a currency (“the second currency”) which is neither sterling nor the first currency; or

(b) in the case of a company which is not resident in the United Kingdom, the company makes a return of accounts for its branch in the United Kingdom prepared in a currency other than sterling (“the first currency”) in accordance with generally accepted accounting practice, but, so far as relating to part of the business, it is prepared, using the closing rate/ net investment method, from financial statements and records prepared in a currency (“the second currency”) which is neither sterling nor the first currency.

(4) The profits or losses of the part of the business for an accounting period shall for the purposes of corporation tax be found by—

(a) taking the amount of all the profits and losses of the part of the business for the period computed and expressed in the relevant foreign currency; and

(b) taking—

(i) in a case where the first condition is fulfilled, the sterling equivalent, or

(ii) in a case where the second condition is fulfilled, the equivalent in the first currency,

of the amount found by applying paragraph (a) above.

(5) In a case where the second condition is fulfilled, effect shall be given to subsection (4) above before effectis given to section 93(4) above.

(6) In the application for the purposes of subsection (4)(a) above of—

(a) section 578A(2) or (3) of the Taxes Act 1988, or

(b) section 43(3), 74(2), 75(1), 76(2), (3) or (4), 99(1), (2) or (3) or 208(1) of the Capital Allowances Act,

it shall be assumed that any sterling amount mentioned in any of those sections is its equivalent expressed in the relevant foreign currency.

(7) Where for any accounting period—

(a) the accounts of the company, so far as relating to a part of its business, are prepared, using the closing rate/net investment method, from financial statements and records prepared in a currency which is not sterling and, where the second condition is fulfilled, is not the first currency, or

(b) in the case of a company which is not resident in the United Kingdom, its return of accounts for its branch in the United Kingdom, so far as relating to a part of the company’s business, is prepared, using that method, from such financial statements and records,

then, if different such financial statements and records are prepared in different currencies, the company shall be treated for the purposes of this section as having a separate part of a separate business for each such different currency (and this section shall accordingly apply separately in relation to each such part).

(8) In this section, “part of a business” includes any collection of assets and liabilities.

(9) In this section, unless the context otherwise requires—

• “accounts” has the same meaning as in section 93 above;

• “the closing rate/net investment method” means the method so called as described under the title “Foreign currency translation" in the Statement of Standard Accounting Practice issued in April 1983 by the Institute of Chartered Accountants in England and Wales;

• “losses” has the same meaning as in section 92 above, except that it does not include allowable losses within the meaning of the Taxation of Chargeable Gains Act 1992;

• “profits” has the same meaning as in section 92 above, except that it does not include chargeable gains within the meaning of that Act;

• “the relevant foreign currency” means the currency in which the financial statements and records mentioned in subsection (2) or, as the case may be, (3) above are prepared;

• “return of accounts” has the same meaning as in section 93 above.”.

Rules for ascertaining currency equivalents: general U.K.

5 For section 94 substitute—

“94AA Rules for ascertaining currency equivalents: general

(1) Where any receipt or expense, or the value of any asset, liability or derivative contract, of a company—

(a) is to be taken into account in making a computation under subsection (1) of section 92 above for an accounting period, and

(b) is denominated in a currency other than sterling,

it shall be translated into its sterling equivalent by reference to a rate determined in accordance with subsection (4) below.

(2) Where the amount of any receipt or expense, or the value of any asset, liability or derivative contract, of a company—

(a) falls to be brought into account for the purposes of the accounts mentioned in paragraph (a), or the return of accounts mentioned in paragraph (b), of subsection (2) of section 93 above,

(b) is denominated in a currency other than the relevant foreign currency, within the meaning of that section, and

(c) accordingly falls to be translated into the relevant foreign currency,

the amount or value shall for the purposes of that section be translated from the currency mentioned in paragraph (b) above into the relevant foreign currency by reference to a rate determined in accordance with subsection (4) below.

(3) Where, for any purpose of any provision of section 93A(4) or (6) above, any profit or loss denominated in one currency falls to be translated into its equivalent expressed in another currency, the translation shall be made by reference to a rate determined in accordance with subsection (4) below.

(4) The rate is—

(a) the rate used in the preparation of the accounts of the company for the accounting period in question, if that rate is an arm’s length exchange rate for the relevant day, or

(b) in any other case, the London closing exchange rate for the relevant day.

(5) The reference in subsection (4)(a) above to the exchange rate used in the preparation of the accounts of the company includes a reference to any exchange rate implied by a derivative contract whose underlying subject matter is currency.

(6) Nothing in this section affects the operation of Chapter 4 of Part 17 of the Taxes Act 1988 (controlled foreign companies).

(7) Nothing in paragraph 88 of Schedule 18 to the Finance Act 1998 (company tax returns, assessments and related matters) shall be taken to prevent an amount being translated under this section for an accounting period by reference to an exchange rate which was not the exchange rate used to translate that amount for the purposes of the Corporation Tax Acts for another accounting period (whether of the same or a different company).

(8) In this section—

• “accounts” has the same meaning as in section 93 above;

• “arm’s length exchange rate” means such exchange rate as might reasonably be expected to be agreed between persons dealing at arm’s length;

• “derivative contract” shall be construed in accordance with Schedule 26 to the Finance Act 2002;

• “the relevant day”—

  (a)

  where the rate used in the preparation of the accounts is an exchange rate for a particular day, means that day; and

  (b)

  where the rate used in the preparation of the accounts is an average rate for a number of days, means each of those days;

• “underlying subject matter”, in relation to a derivative contract, shall be construed in accordance with Schedule 26 to the Finance Act 2002.”.

Rules for ascertaining sterling equivalent for section 93(4) or (5) U.K.

6 After section 94AA insert—

“94AB Rules for ascertaining sterling equivalent for section 93(4) or (5)

(1) Where the amount of any receipt or expense, or the value of any asset, liability or derivative contract, of a company falls to be translated into its sterling equivalent for the purposes of section 93(4) or (5) above, the translation shall be made by reference to a rate which is an arm’s length exchange rate for the appropriate day.

(2) For the purposes of subsection (1) above, the “appropriate day” is the day the rate for which would have been used if the accounts, or return of accounts, of the company were translated into sterling in accordance with generally accepted accounting practice in relation to foreign currency translation.

(3) Nothing in this section affects the operation of Chapter 4 of Part 17 of the Taxes Act 1988 (controlled foreign companies).

(4) Nothing in paragraph 88 of Schedule 18 to the Finance Act 1998 (company tax returns, assessments and related matters) shall be taken to prevent an amount being translated under this section for an accounting period by reference to an exchange rate which was not the exchange rate used to translate that amount for the purposes of the Corporation Tax Acts for another accounting period (whether of the same or a different company).

(5) In this section—

• “accounts” has the same meaning as in section 93 above;

• “arm’s length exchange rate” has the same meaning as in section 94AA;

• “derivative contract” shall be construed in accordance with Schedule 26 to the Finance Act 2002.”.

The Finance Act 1994 U.K.

Lloyd’s underwriters: corporations etc U.K.

7 (1) Section 226 of the Finance Act 1994 (c. 9) (provisions which are not to apply to corporate members of Lloyd’s) is amended as follows.

(2) Subsection (1) (which prevents sections 92 to 95 of the Finance Act 1993 (c. 34) from applying) shall cease to have effect (and sections 92 to 94AB of that Act shall accordingly apply for the purposes of computing for the purposes of corporation tax the profits or losses of a corporate member’s underwriting business).