The Government is to bring forward legislation in the next Finance Bill to improve the tax treatment of companies which draw up their accounts in a foreign currency as first announced by Paymaster General Dawn Primarolo on 14 January.

The new legislation will reduce the overall length of existing tax law and in many respects is simpler than that which it replaces.

The draft clauses and a commentary on them will be published on the Inland Revenue’s website. They will also be available in paper form. This Press Release raises a number of specific points on the clauses, and seeks comments generally on them.


1. The proposed legislation will replace the existing rules in sections 92 to 95, 149 and 163 Finance Act 1993 and the related Local Currency Elections Regulations (SI 1994/3230), and will substitute new sections 92 to 94 FA 1993. A copy of the new clauses and a commentary on them is available on the Inland Revenue website at

2. New section 92 FA 1993, when read with new section 94, is intended merely to restate the law as it applies to items other than trading profits and chargeable gains. Hitherto that law has been determined from decisions of the Courts in tax cases. Is it helpful to restate the law in statutory form? And does the restatement give the right answer?

3. New section 93 lays down the conditions for using a non-sterling currency as the “local” or “functional” currency for purposes other than those of the Forex legislation in sections 125 to 170 FA 1993. The new section ensures that a company will automatically use a non-sterling currency for calculating its tax if, under normal accounting practice, it uses that currency in drawing up its overall accounts. Many companies drawing up accounts in non-sterling will be UK resident, but some will undoubtedly be non-resident companies trading in the UK through a branch. The effect of section 93 on them will be that the accounts currency will always be the tax currency. Is this effect appropriate? If not, what should be the test for determining whether a non-resident may use sterling for tax purposes in respect of its UK branch operations?

4. The new legislation does not address the question of companies which are members of partnerships, where the partnership accounts are themselves drawn up in a non-sterling currency. Some aspects of partnerships and exchange gains and losses are covered in Statement of Practice 4/98. If necessary, that Statement will be revised to cover the issues raised by the new clauses. Alternatively, it may prove relatively straight-forward to deal with the point in the legislation. How should the Statement or legislation deal with partnerships with company members?

5. As well as the specific questions asked above, comments are welcomed on any aspect of the draft clauses. They should be sent to

Richard Thomas
Room S15
West Wing
Somerset House

no later than 3 March 2000. Paper versions of the clauses and commentary are also available from this address.


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.

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