UK Publishes Draft Legislation On Foreign Currency Losses

by Robin Pilgrim, LawAndTax-News.com, London

26 March 2009

The UK government has announced the publication of draft legislation affecting how companies compute profits and losses for corporation tax purposes in foreign currencies.

The changes will amend section 92 to 92E of the Finance Act 1993 and insert new legislation so that companies that calculate their profits for income tax purposes in currencies other than sterling carry forward or back any unused losses to offset future or past profits in those currencies instead of sterling.

According to explanatory notes to the draft legislation, released by the Treasury on March 23, the new clause and schedules inserted into the 2009 Finance Bill seek to ensure that foreign currency losses carried forward to future accounting periods or back to a previous accounting period will be translated into sterling at the same exchange rate as the profits they are offsetting. There are special rules to deal with the situation where the losses in one period are computed for corporation tax purposes in one currency but are being offset against profits for an earlier or later period computed in a different currency.

The changes, first announced by Financial Secretary to the Treasury Stephen Timms on December 18, 2008, attempt to tackle problems that have come to light as a result of the recent turbulence in the financial markets.

A draft clause on the first of those issues, relating to preference shares, has previously been released. This proposes to amend the Income and Corporation Taxes Act (ICTA) 1988 to ensure that preference shares that carry a right to a dividend of a fixed amount or at a fixed percentage of the nominal value of the shares, but that give the issuer the right to pay a smaller dividend in certain circumstances, are not disqualified from being treated in the same way as 'Fixed Rate Preference Shares' for the purposes of the tax group rules solely due to this feature.

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