The Exchange Gains and Losses (Alternative Method of Calculation of Gain or Loss) (Amendment) Regulations 1996

Explanatory Note

(This note is not part of the Regulations)

These Regulations amend the Exchange Gains and Losses (Alternative Method of Calculation of Gain or Loss) Regulations 1994 (S.I. 1994/3227) (“the principal Regulations”) which 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 and commencement, and regulation 2 for interpretation.

Regulation 3 adds a definition of “qualifying asset” to regulation 4(2) of the principal Regulations (interpretation).

Regulation 4 amends regulation 5 of the principal Regulations in two respects. The first amendment provides that, where an exchange loss arising to a company in relation to a liability owed by the company is shown in the company’s accounts, in the reserves, and the amount of that exchange loss exceeds the amount of the exchange loss on the proportion (if any) of the liability that is matched with an asset, the amount of the initial exchange loss shall be reduced by the amount of the excess. The second amendment amends the definition of “eligible assets” so as to exclude qualifying assets.

Regulation 5 makes two amendments to regulation 10 of the principal Regulations. First it omits from the list of matters to be identified in a matching election certain items relating to the liability to be matched with an asset. Secondly, where a liability matched by an election ceases at any time to match the asset specified in the election, the regulation enables the election to have effect in relation to any liability of a company that is eligible to be matched with the asset, irrespective of whether or not the company has ceased to owe the liability originally matched by the election.

Regulation 6 amends regulation 11(5) of the principal Regulations so as to make clear that the special rules for determining the date when a matching election made by a controlled foreign company takes effect do not apply where, prior to the accounting period for which a direction under section 747 of the Income and Corporation Taxes Act 1988 (c. 1) (imputation of chargeable profits and creditable tax of a controlled foreign company) is made in relation to the company, there has been a previous accounting period in respect of which the company has pursued, within the meaning of Part I of Schedule 25 to that Act, an acceptable distribution policy.