Euro tax door closed

Banks and leading financial institutions have failed in a renewed bid to persuade the government that they should have the right to pay tax in euros on investments within the new euro zone.

City institutions were prompted to renew their bid, following moves by the Inland Revenue to add the euro to its list of ‘functional currencies’ – ones in which it will accept tax payments on commodities trading.

Profits from investments in foreign currencies were excluded from arrangements made by the Revenue in 1993 to allow companies to pay tax on trading profits in the currencies in which the profits were made.

A consultation paper issued on the eve of last week’s ministerial reshuffle by Helen Liddell, then Treasury economic secretary, set out proposals for the tax treatment of assets and contracts denominated in euro-participating currencies, transactions involving re-denominated assets, the treatment of costs of re-denomination and the interpretation of the special rules allowing for tax accounting in foreign currencies.

It will be followed by draft regulations in the autumn ahead of the launch of the euro on 1 January next year. But the Revenue made it clear this week that it was not prepared to discuss the issue of euro-taxation of investment profits.

Julian Reed, an assistant director in the Revenue’s financial institutional division, said: ‘I wouldn’t say there is no pressure at all to change this. But the government is not persuaded that the business case for extension to non-training companies is sufficiently strong.’

Ernst & Young national tax partner Roger Muray said: ‘It is an opportunity missed.’

Related reading