The Finance Bill published today contains two clauses (104 and 105) which improve the tax treatment of companies that draw up their accounts in a foreign currency.

Drafts of these clauses and a commentary on them were published on the Inland Revenue’s website on 8 February. A Press Release accompanying them raised a number of specific points on the clauses, and sought comments generally on them.

The clauses as published today contain some changes from the drafts, reflecting responses made by a number of companies and bodies. The Government is grateful for the helpful and constructive suggestions made by those commenting.


1. The Press Release of 8 February asked whether the new rules should deal specifically with non-resident companies trading in the United Kingdom through a branch. All those responding said they should, and that they should allow such companies to use sterling as their local currency where the UK branch accounts submitted to the Inland Revenue were drawn up in sterling. The clause published today permits that. It also permits non- resident companies whose UK branch accounts are drawn up in a currency other than sterling which is not the currency of the company’s main accounts to use the branch currency.

2. A number of those responding requested the option to defer the operation of new rules for a period, to enable them to reorganise and replace existing hedging arrangements. The clause now provides that any company that did not make, for whatever reason, a local currency election for 1999 will be able to elect to defer the starting date of the new rules.

3. A number of other minor and more detailed changes have been made. In particular companies will be able to carry forward non-trading loan relationship deficits in a non-sterling currency, as well as losses and management expenses. And there is a clear rule for determining at what exchange rate balances brought forward into the new rules are converted – this will be at the rate on the last day of their final “old rules” period.

4. The 8 February Press Release asked whether the legislation should deal explicitly with partnerships with company members, or whether that was best left to a Statement of Practice. Although many of those responding would have preferred to cover the point in the legislation, no clear or easy way of doing this emerged. This point will therefore be dealt with by amending the existing Statement of Practice SP4/98. A further announcement will be made when this is ready.


A Press Release (“Improving The Tax System For International Companies”) announcing the Government’s intention to include legislation in the next Finance Bill was published on 14 January 2000. A further Press Release (“Improving The Tax System For International Companies: Draft Clauses for Consultation”) was issued on 8 February, together with two draft clauses and a commentary.

Budget Day Press Release REV/C&E2 (“A more competitive environment for business”) also mentioned the change as increasing the attraction of the UK as a base for group financial and treasury operations, and reducing the need for costly hedging arrangements.

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