Corporation Tax Act 2009

694 Exchange gains and losses U.K.

(1) Subsections (2) to (7) apply if—

(a) a company is a party to a derivative contract in an accounting period, and

(b) an exchange gain or exchange loss arises to the company for the accounting period from the contract.

(2) Subsection (3) applies if as a result of [F1 Part 4 of TIOPA 2010] (provision not at arm's length) the company's profits and losses are calculated for tax purposes as if it were not a party to the contract.

(3) Any exchange gains or losses which arise to the company from the contract for the accounting period are left out of account in determining the credits and debits to be brought into account in accordance with this Part.

[F2 (3A) If the contract is to any extent matched, subsection (3) applies to leave out of account only the amount of the exchange gains or losses arising to the company in relation to the contract to the extent that the contract is unmatched (an amount which may be nil).]

(4) Subsection (5) applies if as a result of [F3 Part 4 of TIOPA 2010] the company's profits and losses are calculated for tax purposes as if the terms of the contract were those which would have been agreed by the company and the other party to the contract had they been dealing at arm's length (“the arm's length terms”).

(5) The credits and debits which are to be brought into account in accordance with this Part in the case of the company are to be determined on the assumption that the amount of any exchange gain or loss arising to the company from the contract in the accounting period is the adjusted amount.

(6) In subsection (5), the “adjusted amount” means the amount of an exchange gain or loss which would have arisen from the contract if its terms were the arm's length terms.

(7) That amount may be nil.

[F4 (7A) Subsections (5) to (7) apply only to the extent that the contract is unmatched.]

(8) Nothing in [F5 Part 4 of TIOPA 2010] requires the amounts brought into account in accordance with this Part in respect of exchange gains and losses from derivative contracts to be calculated on the assumption that the arm's length provision had been made instead of the actual provision.

(9) But subsection (8) does not affect the application of—

(a) subsection (3) under subsection (2), or

(b) subsection (5) under subsection (4).

(10) In subsection (8) “the actual provision” and “the arm's length provision” have the same meaning as in [F6 Part 4 of TIOPA 2010 (see sections 149 and 151 of that Act)].

[F7 (11) For the purposes of this section a derivative contract of a company is matched if and to the extent that—

(a) it is in a matching relationship with another derivative contract or loan relationship of the company, or

(b) exchange gains or losses arising in relation to the derivative contract are excluded from being brought into account under regulations under section 606(4)(b),

and “unmatched” is to be construed accordingly.

(12) A derivative contract is in a matching relationship with another derivative contract or loan relationship if one is intended by the company to act to eliminate or substantially reduce the economic risk of the other.

(13) In this section “economic risk” means a risk which can be attributed to fluctuations in exchange rates between currencies over a period of time.

(14) In this section “loan relationship” has the same meaning as in Part 5 (see section 302).]

Textual Amendments

F1 Words in s. 694(2) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 143(2) (with Sch. 9 paras. 1-9, 22)

F2 S. 694(3A) inserted (with effect in accordance with Sch. 7 para. 12 of the amending Act) by Finance Act 2016 (c. 24), Sch. 7 para. 11(2)

F3 Words in s. 694(4) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 143(2) (with Sch. 9 paras. 1-9, 22)

F4 S. 694(7A) inserted (with effect in accordance with Sch. 7 para. 12 of the amending Act) by Finance Act 2016 (c. 24), Sch. 7 para. 11(3)

F5 Words in s. 694(8) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 143(2) (with Sch. 9 paras. 1-9, 22)

F6 Words in s. 694(10) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 143(3) (with Sch. 9 paras. 1-9, 22)

F7 S. 694(11)-(14) inserted (with effect in accordance with Sch. 7 para. 12 of the amending Act) by Finance Act 2016 (c. 24), Sch. 7 para. 11(4)