A company may in an election for a trade or part of a trade state that for accounting periods for which the election has effect an average arm’s length exchange rate will be used in translating the basic profits or losses of the trade or part into sterling for the purposes of section 93(4) or 94(8) of the 1993 Act (as the case may be).

In paragraph (1) 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; and

• “average arm’s length exchange rate” means the rate which represents the average of the arm’s length exchange rates for all the days in the accounting period in question.

Subject to paragraph (4) below, where an election contains a statement in accordance with paragraph (1) above, the average arm’s length exchange rate shall be used in translating the basic profits or losses of the trade or part into sterling for the purposes of section 93(4) or 94(8) of the 1993 Act (as the case may be) for all accounting periods for which the election has effect.

The company may by notice given to the inspector terminate the statement referred to above with effect from the first day of the first accounting period beginning on or after the date of the notice.