Finance Act 2009

Section 38

SCHEDULE 18 U.K. Corporation tax: foreign currency accounting

Amendments of FA 1993 U.K.

1 U.K. FA 1993 is amended as follows.

2 U.K. In section 92(2) (the basic rule: sterling to be used), insert at the end—

“section 92D (sterling equivalents: the basic rule);

sections 92DA and 92DB (sterling equivalents: special rules where amounts carried back or forward);

sections 92DC and 92DD (adjustment of sterling amounts carried back or forward where operating currency changes).”

3 U.K. In section 92B (company operating in currency other than sterling and preparing accounts in another currency), insert at the end—

“(4) Where, for the purposes of computing the profits or losses of the company arising in an accounting period, an amount expressed in sterling is required by subsection (3) to be translated into its equivalent expressed in another currency, it must be translated by reference to the appropriate exchange rate.”

4 U.K. In section 92C (company preparing accounts in currency other than sterling), insert at the end—

“(5) Where, for the purposes of computing the profits or losses of the company arising in an accounting period, an amount expressed in sterling is required by subsection (4) to be translated into its equivalent expressed in another currency, it must be translated by reference to the appropriate exchange rate.”

5 U.K. For section 92D (translating amounts into equivalent in different currency) substitute—

“92D Sterling equivalents: the basic rule

(1) This section applies where, for the purposes of computing the profits or losses of a company arising in an accounting period, a profit or loss is required by section 92B or 92C to be translated into its sterling equivalent.

(2) The translation must be made by reference to the appropriate exchange rate.

(3) This section is subject to sections 92DA and 92DB (special rules where translation is for the purpose of computing amounts to be carried back or carried forward to other accounting periods).

92DA Sterling equivalents: carried-back amounts

(1) This section applies where, for the purpose of computing a carried-back amount in respect of a company, a loss (“the loss”) is required by section 92B or 92C to be translated into its sterling equivalent.

(2) The translation must be made in accordance with rule 1, 2 or 3 (whichever is applicable).

(3) Rule 1 applies if the operating currency of the company in the accounting period in which the loss arises (“the later operating currency”) is the same as the operating currency of the company in the accounting period to which the carried-back amount is to be carried back (“the earlier operating currency”).

(4) Rule 1 is that the loss must be translated into its sterling equivalent by reference to the same rate of exchange as that at which the profit against which the carried-back amount is to be set off is required to be translated under section 92D.

(5) Rule 2 applies if—

(a) the later operating currency is not the same as the earlier operating currency, and

(b) the earlier operating currency is sterling.

(6) Rule 2 is that the loss must be translated into its sterling equivalent by reference to the spot rate of exchange for the last day of the relevant accounting period.

(7) Rule 3 applies if—

(a) the later operating currency is not the same as the earlier operating currency, and

(b) the earlier operating currency is a currency other than sterling.

(8) Rule 3 is that the loss must be translated into its sterling equivalent by—

(a) being translated into the earlier operating currency by reference to the spot rate of exchange for the last day of the relevant accounting period, before

(b) being translated into sterling by reference to the same rate of exchange as that at which the profit against which the carried-back amount is to be set off is required to be translated under section 92D.

(9) In this section “the relevant accounting period” means the latest accounting period of the company before the accounting period in which the loss arises in which the operating currency of the company is the earlier operating currency.

92DB Sterling equivalents: carried-forward amounts

(1) This section applies where, for the purpose of computing a carried-forward amount in respect of a company, a loss (“the loss”) is required by section 92B or 92C to be translated into its sterling equivalent.

(2) The translation must be made in accordance with rule 1, 2 or 3 (whichever is applicable).

(3) Rule 1 applies if the operating currency of the company in the accounting period in which the loss arises (“the earlier operating currency”) is the same as the operating currency of the company in the accounting period to which the carried-forward amount is to be carried forward (“the later operating currency”).

(4) Rule 1 is that the loss must be translated into its sterling equivalent by reference to the same rate of exchange as that at which the profit against which the carried-forward amount is to be set off is required to be translated under section 92D.

(5) Rule 2 applies if—

(a) the earlier operating currency is not the same as the later operating currency, and

(b) the later operating currency is sterling.

(6) Rule 2 is that the loss must be translated into its sterling equivalent by reference to the spot rate of exchange for the first day of the relevant accounting period.

(7) Rule 3 applies if—

(a) the earlier operating currency is not the same as the later operating currency, and

(b) the later operating currency is a currency other than sterling.

(8) Rule 3 is that the loss must be translated into its sterling equivalent by—

(a) being translated into the later operating currency by reference to the spot rate of exchange for the first day of the relevant accounting period, before

(b) being translated into sterling by reference to the same rate of exchange as that at which the profit against which the carried-forward amount is to be set off is required to be translated under section 92D.

(9) In this section “the relevant accounting period” means the earliest accounting period of the company after the accounting period in which the loss arises in which the operating currency of the company is the later operating currency.

92DC Adjustment of sterling losses: carried-back amounts

(1) This section applies if conditions A to C are met.

(2) Condition A is that, in accordance with generally accepted accounting practice, a company resident in the United Kingdom—

(a) prepares its accounts for a period of account in sterling, or

(b) prepares its accounts for a period of account in a currency other than sterling and in those accounts identifies sterling as its functional currency.

(3) Condition B is that a loss of the company for the period that falls to be computed in accordance with generally accepted accounting practice for corporation tax purposes (“the loss”) is to be a carried-back amount.

(4) Condition C is that the operating currency of the company in the accounting period to which the loss is to be carried back (“the earlier operating currency”) is a currency other than sterling.

(5) The loss must be adjusted by—

(a) being translated into the earlier operating currency by reference to the spot rate of exchange for the last day of the relevant accounting period, before

(b) being translated into sterling by reference to the same rate of exchange as that at which the profit against which the carried-back amount is to be set off is required to be translated under section 92D.

(6) In this section “the relevant accounting period” means the latest accounting period of the company before the accounting period in which the loss arises in which the operating currency of the company is the earlier operating currency.

92DD Adjustment of sterling losses: carried-forward amounts

(1) This section applies if conditions A to C are met.

(2) Condition A is that, in accordance with generally accepted accounting practice, a company resident in the United Kingdom—

(a) prepares its accounts for a period of account in sterling, or

(b) prepares its accounts for a period of account in a currency other than sterling and in those accounts identifies sterling as its functional currency.

(3) Condition B is that a loss of the company for the period that falls to be computed in accordance with generally accepted accounting practice for corporation tax purposes (“the loss”) is to be a carried-forward amount.

(4) Condition C is that the operating currency of the company in the accounting period to which the loss is to be carried forward (“the later operating currency”) is a currency other than sterling.

(5) The loss must be adjusted by—

(a) being translated into the later operating currency by reference to the spot rate of exchange for the first day of the relevant accounting period, before

(b) being translated into sterling by reference to the same rate of exchange as that at which the profit against which the carried-forward amount is to be set off is required to be translated under section 92D.

(6) In this section “the relevant accounting period” means the earliest accounting period of the company after the accounting period in which the loss arises in which the operating currency of the company is the later operating currency.

92DE Meaning of “carried-back amount” and “carried-forward amount”

(1) In sections 92DA and 92DC “carried-back amount” means—

(a) an amount carried back under section 393A(1)(b) of the Taxes Act 1988 (trading losses),

(b) an amount carried back by virtue of a claim under section 459(1)(b) of the Corporation Tax Act 2009 (non-trading deficits from loan relationships), or

(c) an amount carried back under section 389(2) of the Corporation Tax Act 2009 (deficits of insurance companies).

(2) In sections 92DB and 92DD “carried-forward amount” means—

(a) an amount carried forward under section 76(12) or (13) of the Taxes Act 1988 (certain expenses of insurance companies),

(b) an amount carried forward under section 392A(2) or (3) of the Taxes Act 1988 (UK property business losses),

(c) an amount carried forward under section 392B(1)(b) of the Taxes Act 1988 (overseas property business losses),

(d) an amount carried forward under section 393(1) of the Taxes Act 1988 (trading losses),

(e) an amount carried forward under section 396(1) of the Taxes Act 1988 (losses from miscellaneous transactions),

(f) an amount carried forward under section 436A(4) of the Taxes Act 1988 (insurance companies: losses from gross roll-up business),

(g) an amount carried forward under section 391(2) of the Corporation Tax Act 2009 (deficits of insurance companies),

(h) an amount carried forward under section 457(3) of the Corporation Tax Act 2009 (non-trading deficits from loan relationships),

(i) an amount carried forward under section 753(3) of the Corporation Tax Act 2009 (non-trading loss on intangible fixed assets),

(j) an amount carried forward under section 925(3) of the Corporation Tax Act 2009 (patent income: relief for expenses), or

(k) an amount carried forward under section 1223 of the Corporation Tax Act 2009 (expenses of management and other amounts).

(3) References in sections 92DB and 92DD to the profit against which a carried-forward amount is to be set off are, in the case of a carried-forward amount to which this subsection applies, to the profit in computing which the amount is deductible, disregarding the deduction.

(4) Subsection (3) applies to a carried-forward amount that is treated as arising in an accounting period later than that in which it in fact arises, and is accordingly deductible in computing a profit for the later period.”

6 (1) Section 92E (meaning of “accounts”, “return of accounts” and “functional currency”) is amended as follows. U.K.

(2) Before subsection (1) insert—

“(A1) This section applies for the purposes of sections 92A to 92DD.”

(3) In subsection (1), omit “in sections 92A to 92C”.

(4) In subsection (2), for “The reference in section 92C” substitute “ A reference ”.

(5) In subsection (3), omit “in sections 92A, 92B and 92D”.

(6) Insert at the end—

“(4) References to “the appropriate exchange rate”, in relation to the translation of an amount for the purposes of computing the profits or losses of a company arising in an accounting period, are to—

(a) the average exchange rate for the accounting period, or

(b) where the amount to be translated relates to a single transaction, an appropriate spot rate of exchange for the transaction, or

(c) where the amount to be translated relates to more than one transaction, a rate of exchange derived on a just and reasonable basis from appropriate spot rates of exchange for those transactions.

(5) References to the “operating currency” of a company in an accounting period are to the currency in which profits or losses of that company arising in that accounting period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes are required to be computed by virtue of section 92(1), 92A(2), 92B(2)(a) or 92C(3)(a).”

(7) For the heading substitute “Interpretation of sections 92A to 92DD”.

Commencement and transitional provision U.K.

7 (1) The amendments made by this Schedule have effect in relation to profits or losses (including losses that are to be carried-back amounts or carried-forward amounts) arising in accounting periods beginning on or after the commencement date. U.K.

(2) Sub-paragraph (1) is subject to the following provisions of this Schedule.

Sterling equivalent if amount carried back to pre-commencement accounting period U.K.

8 (1) This paragraph applies where— U.K.

(a) a loss of a company (“the loss”) is required by section 92B or 92C of FA 1993 to be translated from a currency other than sterling into its sterling equivalent,

(b) the translation is for the purpose of computing a loss arising in an accounting period beginning on or after the commencement date, and

(c) the loss is to be a carried-back amount that is to be carried back to an accounting period beginning before the commencement date.

(2) Section 92DA of FA 1993 does not have effect in relation to the loss.

(3) The translation must be made by reference to the appropriate exchange rate.

Sterling equivalent if amount carried forward from earlier period U.K.

9 (1) This paragraph applies where— U.K.

(a) a loss of a company (“the loss”) is required by section 92B or 92C of FA 1993 to be translated from a currency other than sterling (“the original currency”) into its sterling equivalent,

(b) the translation is for the purpose of computing a loss arising in an accounting period beginning before the commencement date, and

(c) the loss is to be a carried-forward amount that is to be carried forward to an accounting period beginning on or after the commencement date.

(2) The translation must be made by taking the following steps—

Step 1: translate the loss into its sterling equivalent by reference to the appropriate exchange rate.

Step 2: translate the loss (as translated under step 1) into the original currency by reference to the spot rate of exchange for the first day of the first accounting period of the company beginning on or after the commencement date.

Step 3: translate the loss (as translated under step 2) into its sterling equivalent in accordance with rule 1, 2 or 3 (whichever is applicable).

(3) Rule 1 applies if the original currency and the operating currency of the company in the accounting period to which the carried-forward amount is to be carried forward (“the later operating currency”) are the same.

(4) Rule 1 is that the loss must be translated into its sterling equivalent by reference to the same rate of exchange as that at which the profit against which the carried-forward amount is to be set off is required to be translated under section 92D of FA 1993.

(5) Rule 2 applies if—

(a) the original currency is not the same as the later operating currency, and

(b) the later operating currency is sterling.

(6) Rule 2 is that the loss must be translated into its sterling equivalent by reference to the spot rate of exchange for the first day of the relevant accounting period.

(7) Rule 3 applies if—

(a) the original currency is not the same as the later operating currency, and

(b) the later operating currency is a currency other than sterling.

(8) Rule 3 is that the loss must be translated into its sterling equivalent by—

(a) being translated into the later operating currency by reference to the spot rate of exchange for the first day of the relevant accounting period, before

(b) being translated into sterling by reference to the same rate of exchange as that at which the profit against which the carried-forward amount is to be set off is required to be translated under section 92D of FA 1993.

(9) In this paragraph “the relevant accounting period” means the earliest accounting period of the company beginning after the commencement date in which the operating currency of the company is the later operating currency.

Adjustment of sterling loss if amount carried back to pre-commencement accounting period U.K.

10 (1) This paragraph applies where— U.K.

(a) a loss arises in an accounting period beginning on or after the commencement date,

(b) the loss is to be a carried-back amount that is to be carried back to an accounting period beginning before the commencement date, and

(c) apart from this paragraph, section 92DC of FA 1993 would require that the loss be adjusted.

(2) Section 92DC of FA 1993 does not have effect in relation to the loss.

Adjustment of sterling loss if amount carried forward from earlier period U.K.

11 (1) This paragraph applies where— U.K.

(a) a loss arises in an accounting period beginning before the commencement date,

(b) the loss is to be a carried-forward amount that is to be carried forward to an accounting period beginning on or after the commencement date,

(c) if section 92DD of FA 1993 had effect in relation to losses arising in the accounting period mentioned in paragraph (a), that section would require that the loss be adjusted.

(2) Section 92DD of FA 1993 has effect in relation to the loss.

(3) In the application of section 92DD of FA 1993 by virtue of sub-paragraph (2) that section has effect as if for subsection (6) there were substituted—

“(6) In this section “the relevant accounting period” means the earliest accounting period of the company beginning after the commencement date in which the operating currency of the company is the later operating currency.”

Interpretation U.K.

12 (1) In this Schedule the following expressions have the meaning given by section 92DE or 92E of FA 1993— U.K.

• “appropriate exchange rate”;

• “carried-back amount”;

• “carried-forward amount”;

• “operating currency”.

(2) Subsections (3) and (4) of section 92DE of FA 1993 (meaning of certain references to profit against which carried-forward amount is to be set off) apply in relation to this Schedule as they apply in relation to section 92DB and 92DD of that Act.

(3) In this Schedule “the commencement date” means 29 December 2007.

Right of company to elect for different commencement and transitional provision to apply U.K.

13 (1) If a company so elects, this Schedule has effect in relation to the company with the following modifications— U.K.

(a) paragraphs 9 and 11 do not apply, and

(b) “the commencement date” means the day on which this Act is passed.

(2) An election by a company under this paragraph—

(a) must be made before the end of the period of 30 days beginning with the first day of the first accounting period of the company beginning on or after the day on which this Act is passed, and

(b) is irrevocable.