Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 2 — Calculation of liability in respect of profits
Chapter 4 — Currency
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UK resident company operating in sterling and preparing accounts in another
currency
(1)
This section applies if, for a period of account, in accordance with generally
accepted accounting practice, a UK resident company—
(a)
prepares its accounts in a currency other than sterling, and
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(b)
in those accounts identifies sterling as its functional currency.
(2)
Profits or losses of the company for the period that fall to be calculated in
accordance with generally accepted accounting practice for corporation tax
purposes must be calculated in sterling as if the company prepared its accounts
in sterling.
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UK resident company operating in currency other than sterling and preparing
accounts in another currency
(1)
This section applies if, for a period of account, in accordance with generally
accepted accounting practice—
(a)
a UK resident company prepares its accounts in one currency,
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(b)
in those accounts it identifies another currency as its functional
currency, and
(c)
that other currency is not sterling.
(2)
Profits or losses of the company for the period that fall to be calculated in
accordance with generally accepted accounting practice for corporation tax
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purposes must be calculated in sterling as follows—
Step 1

Calculate those profits or losses in the functional currency as if the company
prepared its accounts in that currency.
Step 2
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Take the sterling equivalent of those profits or losses (see section 11).
(3)
If this section applies, assume that any sterling amount mentioned in the
Corporation Tax Acts is its equivalent expressed in the functional currency of
the company.
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UK resident company preparing accounts in currency other than sterling
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(1)
This section applies if, for a period of account—
(a)
a UK resident company prepares its accounts in a currency other than
sterling (the “accounts currency”), and
(b)
neither section 6 nor section 7 applies.
(2)
Profits or losses of the company for the period that fall to be calculated in
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accordance with generally accepted accounting practice for corporation tax
purposes must be calculated in sterling as follows—
Step 1

Calculate those profits or losses in the accounts currency.
Step 2
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Take the sterling equivalent of those profits or losses (see section 11).

Corporation Tax Bill
Part 2 — Calculation of liability in respect of profits
Chapter 4 — Currency
6

(3)
If this section applies, assume that any sterling amount mentioned in the
Corporation Tax Acts is its equivalent expressed in the accounts currency of
the company.
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Non-UK resident company preparing return of accounts in currency other
than sterling
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(1)
This section applies if—
(a)
a non-UK resident company carries on a trade in the United Kingdom
through a permanent establishment in the United Kingdom, and
(b)
for a period of account, the company prepares its return of accounts in
a currency other than sterling (the “accounts currency”).
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(2)
Profits or losses of the company for the period that fall to be calculated in
accordance with generally accepted accounting practice for corporation tax
purposes must be calculated in sterling as follows—
Step 1

Calculate those profits or losses in the accounts currency.
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Step 2

Take the sterling equivalent of those profits or losses (see section 11).
(3)
If this section applies, assume that any sterling amount mentioned in the
Corporation Tax Acts is its equivalent expressed in the accounts currency of
the company.
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(4)
The reference in subsection (1) to the company’s “return of accounts” is to a
return of such accounts of its permanent establishment in the United Kingdom
as may be required under paragraph 3 of Schedule 18 to FA 1998 (company tax
returns).
Translating amounts into other currencies
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The equivalent in another currency of a sterling amount
(1)
Subsection (2) applies if, for the purposes of calculating the profits or losses of
a company arising in an accounting period, section 7(3), 8(3) or 9(3) requires a
sterling amount to be translated into its equivalent expressed in another
currency.
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(2)
The translation must be made by reference to—
(a)
the average exchange rate for the accounting period, or
(b)
the rate mentioned in subsection (3).
(3)
That rate is—
(a)
if the amount to be translated relates to a single transaction, an
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appropriate spot rate of exchange for the transaction, or
(b)
if the amount to be translated relates to more than one transaction, a
rate of exchange derived on a just and reasonable basis from
appropriate spot rates of exchange for those transactions.

Corporation Tax Bill
Part 2 — Calculation of liability in respect of profits
Chapter 4 — Currency
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Sterling equivalents: basic rule
(1)
Subsection (2) applies if, for the purposes of calculating the profits or losses of
a company arising in an accounting period, section 7(2), 8(2) or 9(2) requires a
profit or loss to be translated into its sterling equivalent.
(2)
The translation must be made by reference to—
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(a)
the average exchange rate for the accounting period, or
(b)
the rate mentioned in subsection (3).
(3)
That rate is—
(a)
if the amount to be translated relates to a single transaction, an
appropriate spot rate of exchange for the transaction, or
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(b)
if the amount to be translated relates to more than one transaction, a
rate of exchange derived on a just and reasonable basis from
appropriate spot rates of exchange for those transactions.
(4)
Subsection (2) is subject to sections 12 and 13 (special rules where the
translation is for the purpose of calculating carried-forward or carried-back
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amounts).
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Sterling equivalents: carried-back amounts
(1)
This section applies if, for the purpose of calculating a carried-back amount in
respect of a company, a loss (“the loss”) is required by section 7(2), 8(2) or 9(2)
to be translated into its sterling equivalent.
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(2)
The translation must be made in accordance with whichever of the rules 1, 2
and 3 is applicable (see the table below).

Rule 1 applies if the later tax
Rule 1 is that the loss must be translated

calculation currency is the same as the
into its sterling equivalent by reference

earlier tax calculation currency.
to the same rate of exchange as that at

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which the profit against which the

carried-back amount is to be set off is

required to be translated under section

11.

Rule 2 applies if—
Rule 2 is that the loss must be translated

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(a)
the later tax calculation
into its sterling equivalent by reference

currency is not the same as the
to the spot rate of exchange for the last

earlier tax calculation
day of the relevant accounting period.

currency, and

(b)
the earlier tax calculation

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currency is sterling.

Corporation Tax Bill
Part 2 — Calculation of liability in respect of profits
Chapter 4 — Currency
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Rule 3 applies if—
Rule 3 is that the loss must be translated

(a)
the later tax calculation
into its sterling equivalent by—

currency is not the same as the
(a)
being translated into the earlier

earlier tax calculation
tax calculation currency by

currency, and
reference to the spot rate of

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(b)
the earlier tax calculation
exchange for the last day of the

currency is a currency other
relevant accounting period, and

than sterling.
(b)
then being translated into

sterling by reference to the same

rate of exchange as that at which

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the profit against which the

carried-back amount is to be set

off is required to be translated

under section 11.

(3)
In the table in subsection (2)—
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“the earlier tax calculation currency” means the tax calculation currency
of the company in the accounting period to which the carried-back
amount is to be carried back,
“the later tax calculation currency” means the tax calculation currency of
the company in the accounting period in which the loss arises, and
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“the relevant accounting period” means the latest accounting period of
the company that both—
(a)
ends before the accounting period in which the loss arises, and
(b)
is a period in which the tax calculation currency of the company
is the same as the earlier tax calculation currency.
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Sterling equivalents: carried-forward amounts
(1)
This section applies if, for the purpose of calculating a carried-forward amount
in respect of a company, a loss (“the loss”) is required by section 7(2), 8(2) or
9(2) to be translated into its sterling equivalent.
(2)
The translation must be made in accordance with whichever of rules 1, 2 and 3
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is applicable (see the table below).

Rule 1 applies if the earlier tax
Rule 1 is that the loss must be translated

calculation currency is the same as the
into its sterling equivalent by reference

later tax calculation currency.
to the same rate of exchange as that at

which the profit against which the

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carried-forward amount is to be set off

is required to be translated under

section 11.

Rule 2 applies if—
Rule 2 is that the loss must be translated

(a)
the earlier tax calculation
into its sterling equivalent by reference

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currency is not the same as the
to the spot rate of exchange for the first

later tax calculation currency,
day of the relevant accounting period.

and

(b)
the later tax calculation

currency is sterling.

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Corporation Tax Bill
Part 2 — Calculation of liability in respect of profits
Chapter 4 — Currency
9

Rule 3 applies if—
Rule 3 is that the loss must be translated

(a)
the earlier tax calculation
into its sterling equivalent by—

currency is not the same as the
(a)
being translated into the later

later tax calculation currency,
tax calculation currency by

and
reference to the spot rate of

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(b)
the later tax calculation
exchange for the first day of the

currency is a currency other
relevant accounting period, and

than sterling.
(b)
then being translated into

sterling by reference to the same

rate of exchange as that at which

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the profit against which the

carried-forward amount is to be

set off is required to be

translated under section 11.

(3)
In the table in subsection (2)—
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“the earlier tax calculation currency” means the tax calculation currency
of the company in the accounting period in which the loss arises,
“the later tax calculation currency” means the tax calculation currency of
the company in the accounting period to which the carried-forward
amount is to be carried forward, and
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“the relevant accounting period” means the earliest accounting period of
the company that both—
(a)
begins after the accounting period in which the loss arises, and
(b)
is a period in which the tax calculation currency of the company
is the same as the later tax calculation currency.
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Adjustment of sterling losses
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Carried-back amounts
(1)
This section applies if conditions A, B and C are met.
(2)
Condition A is that, in accordance with generally accepted accounting practice,
a UK resident company—
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(a)
prepares its accounts for a period of account in sterling, or
(b)
prepares its accounts for a period of account in a currency other than
sterling and in those accounts identifies sterling as its functional
currency.
(3)
Condition B is that a loss of the company for that period (“the loss”) which falls
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to be calculated in accordance with generally accepted accounting practice for
corporation tax purposes is to be a carried-back amount.
(4)
Condition C is that the tax calculation currency of the company in the
accounting period to which the loss is to be carried back (“the earlier tax
calculation currency”) is a currency other than sterling.
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(5)
The loss must be adjusted by—
(a)
first being translated into the earlier tax calculation currency by
reference to the spot rate of exchange for the last day of the relevant
accounting period, and

Corporation Tax Bill
Part 2 — Calculation of liability in respect of profits
Chapter 4 — Currency
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(b)
then being translated into sterling by reference to the same rate of
exchange as that at which the profit against which the carried-back
amount is to be set off is required to be translated under section 11.
(6)
In this section “the relevant accounting period” means the latest accounting
period of the company that both—
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(a)
ends before the accounting period in which the loss arises, and
(b)
is a period in which the tax calculation currency of the company is the
currency mentioned in subsection (4).
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Carried-forward amounts
(1)
This section applies if conditions A, B and C are met.
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(2)
Condition A is that, in accordance with generally accepted accounting practice,
a UK resident company—
(a)
prepares its accounts for a period of account in sterling, or
(b)
prepares its accounts for a period of account in a currency other than
sterling and in those accounts identifies sterling as its functional
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currency.
(3)
Condition B is that a loss of the company for that period (“the loss”) which falls
to be calculated in accordance with generally accepted accounting practice for
corporation tax purposes is to be a carried-forward amount.
(4)
Condition C is that the tax calculation currency of the company in the
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accounting period to which the loss is to be carried forward (“the later tax
calculation currency”) is a currency other than sterling.
(5)
The loss must be adjusted by—
(a)
first being translated into the later tax calculation currency by reference
to the spot rate of exchange for the first day of the relevant accounting
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period, and
(b)
then being translated into sterling by reference to the same rate of
exchange as that at which the profit against which the carried-forward
amount is to be set off is required to be translated under section 11.
(6)
In this section “the relevant accounting period” means the earliest accounting
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period of the company that both—
(a)
begins after the accounting period in which the loss arises, and
(b)
is a period in which the tax calculation currency of the company is the
currency mentioned in subsection (4).
Interpretation
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Sections 13(2) and 15(5): profit against which carried-forward amount to be set
off
(1)
This section is about the interpretation of the references in sections 13(2) and
15(5) to the profit against which a carried-forward amount is to be set off, in a
case where the carried-forward amount—
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(a)
is one that is treated as arising in an accounting period later than that in
which it in fact arises, and
(b)
is accordingly deductible in calculating a profit for that later period.

Corporation Tax Bill
Part 2 — Calculation of liability in respect of profits
Chapter 4 — Currency
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(2)
In such a case, the references are to be read as references to the profit in
calculating which the amount is deductible, disregarding the deduction.
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Interpretation of Chapter
(1)
References in this Chapter to the accounts of a UK resident company are to—
(a)
the annual accounts of the company required by Part 15 of the
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Companies Act 2006, or
(b)
if the company is not required to prepare such accounts, the accounts
which it is required to keep under the law of the territory under whose
laws the company is incorporated, or
(c)
if the company is not required to keep accounts as mentioned in
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paragraph (a) or (b), those accounts of the company that most closely
correspond to accounts which it would have been required to prepare
if the provisions of Part 15 of the Companies Act 2006 applied to it.
(2)
In this Chapter “carried-back amount” means—
(a)
an amount carried back under section 37 (relief for trade losses against
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total profits),
(b)
an amount carried back under section 389(2) of CTA 2009 (deficits of
insurance companies), or
(c)
an amount carried back by virtue of a claim under section 459(1)(b) of
CTA 2009 (non-trading deficits from loan relationships).
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(3)
In this Chapter “carried-forward amount” means—
(a)
an amount carried forward under section 45 (carry forward of trade
loss against subsequent trade profits),
(b)
an amount carried forward under section 62(5) (UK property business
losses),
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(c)
an amount carried forward under section 63(3) (company with
investment business ceasing to carry on a UK property business),
(d)
an amount carried forward under 66(3) (overseas property business
losses),
(e)
an amount carried forward under section 91(6) (losses from
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miscellaneous transactions),
(f)
an amount carried forward under section 76(12) or (13) of ICTA (certain
expenses of insurance companies),
(g)
an amount carried forward under section 436A(4) of ICTA (insurance
companies: losses from gross roll-up business),
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(h)
an amount carried forward under section 391(2) of CTA 2009 (deficits
of insurance companies),
(i)
an amount carried forward under section 457(3) of CTA 2009 (non-
trading deficits from loan relationships),
(j)
an amount carried forward under section 753(3) of CTA 2009 (non-
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trading loss on intangible fixed assets),
(k)
an amount carried forward under section 925(3) of CTA 2009 (patent
income: relief for expenses), or
(l)
an amount carried forward under section 1223 of CTA 2009 (expenses
of management and other amounts).
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(4)
References in this Chapter to a company’s functional currency are to the
currency of the primary economic environment in which the company
operates.