Finance Act 2003 introduced section 730BB ICTA 1988, which
provides the tax treatment for companies on exchange gains and
losses on the original sale price. It ensures that the original
purchase price is translated by reference to the exchange rate
applicable at the repurchase date. Any difference between this
amount and the original accounting currency equivalent of the
purchase price is brought into account as a loan relationship
credit or debit under section 730BB. The price differential is then
brought into account under section 730A. The example at
CFM17295a shows how this rule operates.
Strictly, the legislation requires that any such gain or loss
can only be brought into account when the existence of a gain or
loss is definite - at the end of the repo. However, it is
acceptable for a company to accrue an exchange gain or loss at its
accounting date for tax purposes by reference to the information
that it has in its possession at that time. HMRC will not seek to
disturb this approach, except in cases where there is attempted
manipulation to avoid tax.
Finance Act 2003 also amended section 100 FA 1996 to make
sure that where a repo gives rise to a money debt, and the company
stands as creditor or debtor in relation to that money debt, any
exchange gains or losses will be dealt with only under section
730BB ICTA and not under section 100 FA 1996.
