Exchange gains or losses arising from liabilities or assets hedging shares etc.U.K.

3.—(1) For the purposes of section 84A(3A) of the Finance Act 1996 there is prescribed an exchange gain or loss arising to a company in an accounting period in relation to a liability representing a loan relationship of the company which is matched with the whole or part of any shares, ships or aircraft.

[F1(1A) For the purposes of paragraph (1) a liability representing a loan relationship does not include any liability representing a relationship within section 100(1) of the Finance Act 1996.]

(2) This regulation does not apply if movements in the fair value [F2, or profits or losses arising on the disposal,] of any shares, ships or aircraft which are an asset falling within regulation 3(1) are brought into account by the company in computing, for the purposes of corporation tax, the profits of a trade carried on by it which consists of or includes dealing in shares, ships or aircraft.

(3)  [F3Shares, ships or aircraft are matched to the greatest possible extent with—

(a)

the liability representing the loan relationship designated as a hedge if condition 1 is satisfied;

(b)

subject to paragraph (a), the liability representing the loan relationship referred to in condition 2 if that condition is satisfied;]

F4...

Condition [F51]

The condition is that for the accounting period, the shares, ships or aircraft are a hedged item under a designated hedge of exchange rate risk in which the liability is the hedging instrument.

Condition [F62]

The condition is that the currency in which the liability is expressed is such that the company [F7intends], by entering into [F8and continuing to be subject to] that liability, F9... to eliminate or substantially reduce the economic risk of holding the asset, or part of the asset, which is attributable to fluctuations in exchange rates.

(4) If [F10condition 2] applies, a liability is matched with an asset only to the extent that the carrying value of the liability at the time when the liability is entered into [F11or, if later, when the asset is acquired] does not exceed the unmatched carrying value of the asset at that time.

(5) For the purposes of section 84A(3A) of the Finance Act 1996 there is prescribed an exchange gain or loss arising to a company in an accounting period in relation to an asset representing a loan relationship of the company which is matched with the whole or part of any share capital of the company.

(6) An asset is matched with share capital if for the accounting period of the company immediately preceding the first accounting period to which these Regulations apply—

(a)exchange gains and losses on the asset were taken to a reserve; and

(b)set off there against exchange gains and losses on the share capital.

(7) In this regulation—

“carrying value” means, in relation to a liability, the value as shown in the company’s accounts of that liability; and

“unmatched carrying value” means, in relation to an asset, an amount equal to the value as shown in the company’s accounts to the extent that that amount has not previously been matched in accordance with this regulation or regulation 4.

Textual Amendments

Commencement Information

I1Reg. 3 in force at 1.1.2005, see reg. 1(1)