Finance Act 2004

Part 4 Foreign currency accounting

Main provisions

77 For sections 92 to 94AB of the Finance Act 1993 (c. 34) (corporation tax: currency) substitute—

“Corporation tax: currency

92 The basic rule: sterling to be used

(1) For the purposes of corporation tax the profits of a company for an accounting period must be computed and expressed in sterling.

(2) The following sections contain further provision as to the application of subsection (1) to certain profits or losses falling to be computed in accordance with generally accepted accounting practice—

• section 92A (company operating in sterling and preparing accounts in another currency);

• section 92B (company operating in currency other than sterling and preparing accounts in another currency);

• section 92C (company preparing accounts in currency other than sterling).

92A Company operating in sterling and preparing accounts in another currency

(1) This section applies if, for a period of account, in accordance with generally accepted accounting practice, a company resident in the United Kingdom—

(a) prepares its accounts in a currency other than sterling, and

(b) in those accounts identifies sterling as its functional currency.

(2) Profits or losses of the company for the period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes must be computed in sterling as if the company prepared its accounts in sterling.

92B Company operating in currency other than sterling and preparing accounts in another currency

(1) This section applies if, for a period of account, in accordance with generally accepted accounting practice—

(a) a company resident in the United Kingdom prepares its accounts in one currency,

(b) in those accounts it identifies another currency as its functional currency, and

(c) that currency is not sterling.

(2) Profits or losses of the company for the period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes must be computed in sterling by—

(a) computing those profits or losses in the functional currency as if the company prepared its accounts in that currency, and

(b) taking the sterling equivalent of those profits or losses.

(3) Where this section applies, it shall be assumed that any sterling amount mentioned in the Corporation Tax Acts is its equivalent expressed in the functional currency of the company.

92C Company preparing accounts in currency other than sterling

(1) This section applies in relation to a company resident in the United Kingdom if, for a period of account—

(a) the company prepares its accounts in a currency other than sterling (the “accounts currency”), and

(b) neither section 92A nor section 92B applies.

(2) This section also applies in relation to a company that is not resident in the United Kingdom if, for a period of account, the company prepares its return of accounts in a currency other than sterling (the “accounts currency”).

(3) Profits or losses of the company for the period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes must be computed in sterling by—

(a) computing those profits or losses in the accounts currency, and

(b) taking the sterling equivalent of those profits or losses.

(4) Where this section applies, it shall be assumed that any sterling amount mentioned in the Corporation Tax Acts is its equivalent expressed in the accounts currency of the company.

92D Translating amounts into equivalent in different currency

(1) Where, for the purposes of computing the profits or losses of a company for an accounting period, an amount is required by section 92B or 92C to be translated—

(a) into its sterling equivalent, or

(b) into its equivalent expressed in the functional currency or the accounts currency of the company,

the translation must be made by reference to the appropriate exchange rate.

(2) The “appropriate exchange rate” is—

(a) the average exchange rate for the current accounting period, or

(b) an appropriate spot rate of exchange for the transaction in question.

92E Meaning of “accounts”, “return of accounts” and “functional currency”

(1) References in sections 92A to 92C to the “accounts” of a company resident in the United Kingdom are to—

(a) the annual accounts of the company required by Part 7 of the Companies Act 1985 or Part 8 of the Companies (Northern Ireland) Order 1986; or

(b) if the company is not required to prepare such accounts, the accounts which it is required to keep under the law of the country or territory under whose laws the company is incorporated; or

(c) if the company is not so required to keep accounts, such of its accounts as most closely correspond to accounts which it would have been required to prepare if the provisions of Part 7 of the Companies Act 1985 applied to it.

(2) The reference in section 92C to the “return of accounts” of a company not resident in the United Kingdom is to a return of such accounts of its permanent establishment in the United Kingdom as may be required by the Inland Revenue under paragraph 3 of Schedule 18 to the Finance Act 1998 (company tax returns).

(3) References in sections 92A, 92B and 92D to a company’s “functional currency” are to the currency of the primary economic environment in which the company operates.”.

Consequential amendments

78 (1) Section 730BB of the Taxes Act 1988 (exchange gains and losses on sale and repurchase of securities) is amended as follows.

(2) In subsection (2)(c) for the words from “section 93 of the Finance Act 1993” to “sterling)” substitute “section 92B or 92C of the Finance Act 1993 (company preparing accounts or operating in currency other than sterling)”.

(3) In subsection (3)—

(a) in paragraph (a) for “section 93 of the Finance Act 1993” substitute “section 92B or 92C of the Finance Act 1993 (company preparing accounts or operating in currency other than sterling)”;

(b) in paragraph (b) for the words from “relevant foreign currency” to “the company” substitute “relevant currency”;

(c) in paragraph (c)(i) and (ii) for “relevant foreign currency” substitute “relevant currency”.

(4) After subsection (3) insert—

“(3A) In subsection (3), references to the relevant currency are—

(a) in cases in which section 92B of the Finance Act 1993 applies, to the functional currency (within the meaning of that section), and

(b) in cases in which section 92C of the Finance Act 1993 applies, to the accounts currency (within the meaning of that section).”

(5) Omit subsection (12).