Section 173A | Exchange gains and losses arising as a result of qualifying loan relationships and derivative contracts

(1)Neither subsection (3) nor (5) of section 147 applies in relation to exchange gains and losses to the extent they arise, or would arise if either subsection applied, in relation to a qualifying financial instrument of a company.

(2)Accordingly, for the purposes of determining whether actual provision confers a potential advantage on a person, ignore the effect of so much of any exchange gain or loss as arises, or would have arisen, in relation to a qualifying financial instrument.

(3)In this section a qualifying financial instrument of a company means a financial instrument that is, or forms part of, actual provision to the extent—

(a)it is matched with another financial instrument of the company,

(b)it forms part of a currency tax offset arrangement,

(c)an exchange gain or loss arising to the company in relation to the financial instrument would be—

(i)prescribed an exchange gain or loss under regulation 3(1) or (5), 4(1) or (4A) or 5A(1) of the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004,

(ii)an excluded amount for the purposes of sections 598(1)(a) and 606(4) of CTA 2009 as a result of regulation 5ZA(1) of those regulations, or

(iii)an excluded amount for the purposes of section 598(1)(a) of CTA 2009 as a result of regulation 7A of those regulations,

(d)the financial instrument gives rise to regulation 7 fair value profits or losses within the meaning of regulation 7 of those regulations, or

(e)the financial instrument is wholly denominated in the reference currency used by the company in relation to the actual provision, or the part of the actual provision, to which the financial instrument relates.

(4)A financial instrument of a company is matched with another financial instrument of the company to the extent that one is intended by the company to act to eliminate or substantially reduce the currency risk of the other.

(5)A financial instrument of a company forms part of a currency tax offset arrangement to the extent that—

(a)the company (“the first company”) has an exchange gain or loss arising in relation to the instrument and that would (ignoring this Part) be brought into account,

(b)that gain or loss is offset by a corresponding exchange loss or gain arising to another company in relation to that financial instrument or another financial instrument and that would (ignoring this Part) be brought into account by that other company, and

(c)the companies intended that the gain or loss referred to in paragraph (a) would be offset by the loss or gain referred to in paragraph (b).

(6)In this section—

“currency risk” means a risk which can be attributed to fluctuations in exchange rates between currencies over a period of time;

“financial instrument” means—

a loan relationship, or

a derivative contract;

“reference currency”, in relation to a company and actual provision or part of actual provision, means the currency by reference to which the profits of the company, so far as they relate to the provision or part, are calculated for corporation tax purposes.