The Exchange Gains and Losses (Alternative Method of Calculation of Gain or Loss) Regulations 1994

Explanatory Note

(This note is not part of the Regulations)

These Regulations, which come into force on 23rd March 1995, make provision for an alternative method of calculation to be used in certain circumstances for finding the amount to be treated as an exchange gain or loss under the provisions in Chapter II of Part II of the Finance Act 1993.

Regulation 1 provides for citation, commencement and interpretation.

Regulations 2 and 3 apply the alternative method of calculation, with a prescribed modification in certain circumstances, where

• an asset, currency contract or liability is held or owed in exempt circumstances, or

• an asset represents income which is unremittable.

Regulation 4 contains definitions and other interpretation provisions for the purposes of regulations 5 to 11.

Regulation 5 applies the alternative method of calculation, with a prescribed modification in certain circumstances, where a liability is matched with an asset, and sets out the rules for determining whether assets and liabilities are eligible to be matched.

Regulation 6 provides for matching elections in relation to controlled foreign companies.

Regulation 7 provides for exchange differences on a liability which are left out of account under the matching arrangements to be brought into charge when the matched asset is disposed of.

Regulation 8 provides for the chargeable gain or allowable loss which arises under regulation 7 to be

• deferred where the capital gains tax rules provide that neither a gain nor a loss accrues on the disposal of the matched asset, or

• taken into account in computing chargeable gains and allowable losses under the Taxation of Chargeable Gains Tax Act 1992 in cases which fall within section 140 of that Act, or which would fall within that section but for these provisions.

Regulation 9 provides for a gain or loss to be computed and deferred where shares are replaced by a new holding and section 116 or 127 of the Taxation of Chargeable Gains Act 1992 applies.

Regulations 10 and 11 make provision concerning matching elections.

Regulation 12 provides for the effect of regulations 2 and 4 to 11 to be ignored in determining whether companies have “corresponding” exchange gains and losses under section 136(11) or 136A(9) of the Finance Act 1993.