Finance Act 1994

157 Basis of accounting for linked currency options

(1) As regards a qualifying contract which is a linked currency option, a qualifying company’s profit or loss for an accounting period shall be computed on a mark to market basis of accounting.

(2) Accordingly if, as regards such an option, a qualifying company’s profit or loss for an accounting period would, apart from subsection (1) above, fall to be computed on an accruals basis of accounting, that profit or loss shall be computed for the purposes of this Chapter on a mark to market basis of accounting which—

(a) satisfies the requirements of section 156 above, or would satisfy those requirements if paragraph (a) of subsection (3) of that section were omitted, and

(b) is specified in an agreement between the company and the inspector or, in default of such an agreement, in a notice served on the company by the inspector.

(3) A currency option is a linked currency option for the purposes of this section if each of the conditions mentioned below is fulfilled.

(4) The first condition is that—

(a) in the case of an option exercisable by the qualifying company against the other party, another currency option is exercisable by that party against the company; or

(b) in the case of an option exercisable by the other party against the qualifying company, another currency option is exercisable by the company against that party.

(5) For the purposes of subsection (4) above, another currency option which is exercisable by or against an associated company of the qualifying company, or by or against an associated company of the other party to the currency option in question, shall be treated as exercisable by or against the qualifying company or that party.

(6) The second condition is that the terms of the two options are such that—

(a) they must be exercised (if at all) at the same, or substantially the same, time, and

(b) the rights and duties under the contract which would arise if the one option were exercised are the same, or substantially the same, as those under the contract which would arise if the other option were exercised.

(7) Where the currency option in question is such an option by virtue of section 150(8) above, subsections (4) and (5) above shall be construed as if—

(a) any reference to an option being exercisable by any person were a reference to a contract subject to a condition precedent the fulfilment of which would result in a transfer of value to that person, and

(b) any reference to an option being exercisable against any person were a reference to a contract subject to a condition precedent the fulfilment of which would result in a transfer of value by that person.

(8) For the purposes of subsection (7) above there is a transfer of value to or by any person if, immediately after the fulfilment of the condition, the value of that person’s net assets is more or, as the case may be, less than it would have been but for the fulfilment of the condition.

(9) Any reference in subsection (8) above to the value of a person’s net assets being more or less than it would have been but for the fulfilment of the condition includes a reference to the value of that person’s net liabilities being less or, as the case may be, more than it would have been but for the fulfilment of the condition.

(10) In this section “associated company” shall be construed in accordance with section 416 of the Taxes Act 1988 and any reference to a currency option is a reference to one which is a qualifying contract.