CFM10516 - Currency transactions and accounting: when there is more than one foreign currency

Foreign currency accounts using statements in a second currency

This guidance describes the post-FA 2002 taxation of loan relationships, derivative contracts and FOREX.

FA93/S93A(3) sets out a further two circumstances in which:

• the exchange rate used to translate profits and losses of part of a business is applied to the net profit or loss of the part, and not to individual transactions, and
• any exchange gains and losses taken to reserve are ignored for CT purposes.

The circumstances are where:

In such cases, calculate the CT profits or loss for each branch, or part of the business, arising in the second currency.

Translate the amounts in the second currency into the first currency, using the exchange rate used in the accounts (see CFM10515). If no arm's length rate is used in the accounts, use the London closing rate.

Next, work out the CT profit or loss of the company (or UK branch) as a whole, expressed in the first currency.

For each different second currency used, a company is treated as having a separate part of a separate business (FA93/S93A (7)), and the above steps are applied to them one by one.

Finally, translate the first currency into sterling for the company tax return (see CFM10520+).

There is an example at CFM10516a.