CTM76290 - Local currency accounting (FA93 scheme): election: for existing tax treatment to continue

The condition at (c) of CTM76280 is to enable companies to continue the existing tax treatment for overseas branches where this does not follow the accounting treatment. The reason for this is usually that there has in the past, been a change in the method used for accounting purposes but the old basis has been retained for tax purposes in the interests of consistency.

Where the accounts of an overseas branch are incorporated into a company's accounts using the ‘closing rate/net investment' method, exchange differences that arise on translating the assets and liabilities of the branch into the company's local currency are taken to reserves (see CTM76480). The result is that the profit or loss of the branch is computed by reference to the currency of the branch accounts. Where the accounts have been prepared using this method but the tax computation is adjusted to give the same result as if the accounts had been prepared in sterling, the normal rule deeming sterling to be the local currency will apply unless the company chooses to make an election.

Where the accounts of an overseas branch are incorporated into a company's accounts using the ‘temporal' method, exchange differences which arise on translating the assets and liabilities of the branch are taken to the profit and loss account (see CTM76495). The result is that the profit or loss of the branch is computed by reference to the company's local currency. Where the accounts have been prepared using this method but the tax computation is adjusted so that exchange differences computed by reference to the company's local currency are ignored for tax purposes, without the provision at (c) of CTM76280 no election could be made.