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Finance Bill - continued        House of Commons
PART III, INCOME TAX, CORPORATION TAX AND CAPITAL GAINS TAX - continued
Groups and group relief - continued
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Chargeable gains: non-resident companies and groups etc.     101. Schedule 29 to this Act has effect.
 
  In that Schedule-
 
 
    Part I makes provision with respect to the application of the Taxation of Chargeable Gains Act 1992 to companies not resident in the United Kingdom and groups of companies etc,
 
    Part II contains minor and consequential amendments, and
 
    Part III contains transitional provisions.
 
International matters
Double taxation relief.     102. Schedule 30 to this Act (double taxation relief) shall have effect.
 
Controlled foreign companies.     103. Schedule 31 to this Act (which makes provision in relation to controlled foreign companies) shall have effect.
 
Corporation tax: use of currencies other than sterling.     104. - (1) For sections 92 to 95 of the Finance Act 1993 there shall be substituted-
 
 
"The basic rule: sterling to be used.     92. - (1) Where a company carries on a business, the profits or losses of the business for an accounting period shall for the purposes of corporation tax be computed and expressed in sterling; but this is subject to section 93 below.
 
    (2) In this section-
 
 
    "losses" includes management expenses and any allowances falling to be made under section 28 or 61(1) of the Capital Allowances Act 1990;
 
    "profits" includes gains, income and any charges falling to be made under section 28 or 61(1) of that Act.
Use of currency other than sterling.     93. - (1) This section applies where in an accounting period a company carries on a business and-
 
 
    (a) the accounts of the company as a whole are prepared in a currency other than sterling in accordance with normal accounting practice and, if the company is not resident in the United Kingdom, it makes a return of accounts for its branch in the United Kingdom prepared in a currency other than sterling in accordance with such practice; or
 
    (b) the accounts of the company as a whole are prepared in sterling but, so far as relating to the business, they are prepared, using the closing rate/net investment method, from financial statements prepared in a currency other than sterling;
  and in this section "the relevant foreign currency" means the currency other than sterling or, in a case falling within paragraph (a) above which involves two different such currencies, the currency in which the return of accounts is prepared.
 
      (2) The profits or losses of the business for an accounting period shall for the purposes of corporation tax be found by-
 
 
    (a) taking the amount of all the profits and losses of the business for the period computed and expressed in the relevant foreign currency;
 
    (b) taking account of any of the following which are so computed and expressed-
 
      (i) any management expenses brought forward under section 75(3) of the Taxes Act 1988 from an earlier accounting period;
 
      (ii) any losses of the business brought forward under section 392B or 393 of that Act from such a period; and
 
      (iii) any non-trading deficits on loan relationships brought forward under section 83 of the Finance Act 1996 from the previous accounting period; and
 
    (c) taking the sterling equivalent of the amount found by applying paragraphs (a) and (b) above.
      (3) In the application of section 22B, 34, 35, 38C, 38D or 79A of the Capital Allowances Act 1990 for the purposes of subsection (2)(a) or (b) above, it shall be assumed that any sterling amount mentioned in any of those sections is its equivalent expressed in the relevant foreign currency.
 
      (4) Where in an accounting period-
 
 
    (a) a company carries on different parts of a business through different branches (whether within or outside the United Kingdom); and
 
    (b) this section would apply differently in relation to different parts if they were separate businesses,
  those parts shall be treated for the purposes of this section as if they were separate businesses for that period.
 
      (5) In this section, unless the context otherwise requires-
 
 
    "accounts", in relation to a company, means-
 
      (a) the annual accounts of the company prepared in accordance with Part VII of the Companies Act 1985 or Part VIII 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 its home State; 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 that Part applied to it;
 
    "branch" includes any collection of assets and liabilities;
 
    "the closing rate/net investment method" means the method so called as described under the title "Foreign currency translation" in the Statement of Standard Accounting Practice issued in April 1983 by the Institute of Chartered Accountants in England and Wales;
 
    "home State", in relation to a company, means the country or territory under whose laws the company is incorporated;
 
    "losses" has the same meaning as in section 92 above except that it does not include allowable losses within the meaning of the Taxation of Chargeable Gains Act 1992;
 
    "profits" has the same meaning as in section 92 above except that it does not include chargeable gains within the meaning of that Act;
 
    "return of accounts", in relation to a branch in the United Kingdom, means a return of such accounts of the branch as may be required by the Inland Revenue under paragraph 3 of Schedule 18 to the Finance Act 1998 (company tax returns, assessments and related matters).
Rules for ascertaining currency equivalents.     94. - (1) Any receipt or expense which is to be taken into account in making a computation under subsection (1) of section 92 above for an accounting period, and is denominated in a currency other than sterling, shall be translated into its sterling equivalent-
 
 
    (a) if either of the conditions mentioned in subsection (2) below is fulfilled, by reference to the rate used in the preparation of the accounts of the company as a whole for that period;
 
    (b) if neither of those conditions is fulfilled, by reference to the London closing exchange rate for the relevant day.
      (2) The conditions are-
 
 
    (a) that the rate is an arm's length exchange rate for the relevant day;
 
    (b) that the rate is an average arm's length exchange rate for a period ending with that day, and the arm's length exchange rate for any day in that period (except the first) is not significantly different from that for the preceding day.
      (3) Subject to subsections (5) and (7) below, any amount found by applying paragraphs (a) and (b) of subsection (2) of section 93 above shall be translated into its sterling equivalent by reference to the London closing exchange rate for the relevant day.
 
      (4) The following-
 
 
    (a) any receipt or expense which is to be taken into account in making a calculation for the purposes of subsection (2)(a) or (b) of section 93 above, and is denominated in a currency other than the relevant foreign currency; and
 
    (b) any such sterling amount as is referred to in subsection (3) of that section,
  shall be translated into its equivalent expressed in the relevant foreign currency by reference to the London closing exchange rate for the relevant day.
 
      (5) Where section 93 above applies by virtue of subsection (1)(a) of that section, then, as regards the business or part of the business, the company-
 
 
    (a) may elect, by a notice given to an officer of the Board, that as from the first day of the accounting period in which the notice is given, an average arm's length exchange rate shall be used for the purposes of subsection (3) above instead of the rate there mentioned; and
 
    (b) may withdraw such an election, by a notice so given, as from the first day of the first accounting period beginning on or after the date of the notice.
      (6) Where an election under subsection (5) above is withdrawn, no further election may be made under that subsection so as to take effect before the third anniversary of the day on which the withdrawal takes effect.
 
      (7) Where-
 
 
    (a) section 93 above applies by virtue of subsection (1)(b) of that section; and
 
    (b) the accounts of the company, so far as relating to the business or part of the business, are prepared by reference to an average arm's length exchange rate,
  that exchange rate shall be used for the purposes of subsection (3) above instead of the rate there mentioned.
 
      (8) In this section-
 
 
    "accounts" has the same meaning as in section 93 above;
 
    "arm's length exchange rate" means such exchange rate as might reasonably be expected to be agreed between persons dealing at arm's length;
 
    "average arm's length exchange rate", in relation to an accounting period, means the rate which represents an appropriate average of the arm's length exchange rates for the period;
 
    "the relevant day" means-
 
      (a) for the purposes of subsections (1), (2) and (4)(a) above, the day on which the company becomes entitled to the receipt or incurs (or is treated as incurring) the expense;
 
      (b) for the purposes of subsection (3) above, the last day of the accounting period in question;
 
      (c) for the purposes of subsection (4)(b) above, the day on which the company incurs the capital expenditure.
      (9) Nothing in this section affects the operation of Chapter IV of Part VII of the Taxes Act 1988 (controlled foreign companies) or Chapter II of this Part.
 
      (10) Nothing in paragraph 88 of Schedule 18 to the Finance Act 1998 (company tax returns, assessments and related matters) shall be taken to prevent any amount which is taken to be conclusively determined for the purposes of the Corporation Tax Acts from being translated under this section by reference to an exchange rate which was not used to determine the amount which can no longer be altered.".
 
      (2) Where any of the items referred to in section 93(2)(b) of the Finance Act 1993 (as substituted by subsection (1) above) fall to be taken into account in the first accounting period in relation to which this section has effect, the amounts of those items shall be computed and expressed in the relevant currency by reference to the London closing exchange rate for the last day of the immediately preceding accounting period.
 
      (3) Where any of the items referred to in section 25(1) of the Capital Allowances Act 1990 which fall to be taken into account for the first accounting period in relation to which this section has effect relate to expenditure which was incurred before the beginning of that period, the amounts of those items shall be computed and expressed in the relevant currency by reference to the London closing exchange rate for the last day of the immediately preceding accounting period.
 
      (4) Subject to subsection (5) below, this section has effect for accounting periods beginning on or after 1st January 2000 and ending on or after 21st March 2000.
 
      (5) Any company which did not, for the accounting period immediately preceding the first accounting period falling within subsection (4) above, make an election in respect of a trade or part of a trade under the Local Currency Elections Regulations 1994 may, by notice given to an officer of the Board on or before 31st August 2000, elect that this section shall not have effect in relation to it until the first accounting period beginning on or after 1st July 2000.
 
Foreign exchange gains and losses: use of local currency.     105. - (1) In subsection (2) of section 149 of the Finance Act 1993 (local currency to be used)-
 
 
    (a) for "trade or trades", in both places where they occur, there shall be substituted "business or businesses"; and
 
    (b) for "any such trade" there shall be substituted "any such business".
      (2) In subsection (4) of that section-
 
 
    (a) the words "the asset or contract was held, or the liability was owed, by the company solely for trading purposes and" shall cease to have effect; and
 
    (b) for "sections 125 to 128" there shall be substituted "sections 125 to 129".
      (3) In subsection (5) of that section-
 
 
    (a) the words "the asset or contract was held, or the liability was owed, by the company solely for trading purposes and" shall cease to have effect;
 
    (b) for "sections 125 to 128" there shall be substituted "sections 125 to 129"; and
 
    (c) for "trade", in both places where it occurs, there shall be substituted "business".
      (4) For subsection (6) of that section there shall be substituted-
 
 
    "(6) In any other case-
 
 
    (a) sections 125 to 129 above shall be applied by reference to sterling;
 
    (b) those sections shall then be applied separately by reference to each local currency involved (other than sterling); and
 
    (c) any exchange gain or loss of a business or part shall be ignored unless found in the currency which is the local currency of the business or part for the relevant accounting period (whether sterling or otherwise).".
      (5) For subsection (7) of that section there shall be substituted-
 
 
    "(7) For the purposes of this section a part of a business is any part of a business which is treated for the purposes of section 93 above as if it were a separate business for the relevant accounting period.".
 
      (6) For subsection (9) of section 128 of the Finance Act 1993 (trading gains and losses) there shall be substituted-
 
 
    "(9) For the purposes of this section a part of a trade is any part of a trade which is treated for the purposes of section 93 above as if it were a separate business for the relevant accounting period; and the relevant accounting period is the accounting period which constitutes the accrual period concerned or in which that accrual period falls.".
 
      (7) After section 135 of that Act there shall be inserted-
 
 
"Sterling used if avoidance of gain is the main benefit.     135A. Where, as regards a qualifying asset or liability of a company-
 
    (a) sections 125 to 129 above would (apart from this section) fall to be applied by reference to a currency which is not sterling;
 
    (b) the main benefit that might be expected to accrue from the application of those sections by reference to that currency is that no gain would accrue to the company; and
 
    (c) a gain would accrue to the company if those sections were applied by reference to sterling,
  then, as regards that asset or liability, those sections shall be so applied.".
 
      (8) For subsection (12) of section 140 of that Act (deferral of unrealised gains) there shall be substituted-
 
 
    "(12) For the purposes of this section a part of a trade is any part of a trade which is treated for the purposes of section 93 above as if it were a separate business for the relevant accounting period; and the relevant accounting period is the accounting period which constitutes the second accrual period or in which that accrual period falls.".
 
      (9) For subsection (2) of section 142 of that Act (deferral non-sterling trades) there shall be substituted-
 
 
    "(2) For the purposes of subsection (1) above the sterling equivalent of an amount is the sterling equivalent calculated by reference to such rate of exchange as applies by virtue of section 94 above in the case of the profits or losses for the accounting period concerned of the business or part of which the gain or loss is a gain or loss (or would be apart from section 139 above).".
 
      (10) In subsections (3) and (5) of that section, for "trade", in each place where it occurs, there shall be substituted "business".
 
      (11) For subsection (4) of that section there shall be substituted-
 
 
    "(4) The amount the company is treated as receiving under section 128(4) or 129(2) above in respect of the accounting period and by virtue of the gain (as reduced) shall be the amount computed and expressed in that currency.".
 
      (12) In subsection (1) of section 163 of that Act (local currency of a trade), for "trade" there shall be substituted "business".
 
      (13) For subsections (2) and (3) of that section there shall be substituted-
 
 
    "(2) Where by virtue of section 93 above the profits or losses of a business or part of a business for an accounting period are to be computed and expressed in a currency other than sterling for the purposes of corporation tax, that other currency is the local currency of the business or part for that period.".
 
      (14) In section 164 of that Act (interpretation: miscellaneous), subsections (6) and (7) shall cease to have effect.
 
      (15) In section 167 of that Act (orders and regulations)-
 
 
    (a) in subsection (5A), for "the provisions of Chapter II of Part IV of the Finance Act 1996 (loan relationships)" there shall be substituted-
 
    "(a) the provisions of Chapter II of Part IV of the Finance Act 1996 (loan relationships); or
 
    (b) the provisions of sections 104 and 105 of the Finance Act 2000 (use of local currency).";
 
    (b) in subsection (5B), for "subsection (5A)" there shall be substituted "subsection (5A)(a)"; and
 
    (c) after that subsection there shall be inserted-
 
    "(5C) The power to make any such modifications as are mentioned in subsection (5A)(b) above shall be exercisable so as to apply those modifications in relation to any accounting period of a company beginning on or after 1st January 2000.".
 
      (16) In subsection (4)(b) of section 110 of the Finance Act 1998 (determinations requiring the sanction of the Board), after "section 135," there shall be inserted "135A,".
 
      (17) This section has effect for accounting periods beginning on or after 1st January 2000 and ending on or after 21st March 2000.
 
 
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