CTM76800 - Exchange differences: matching: election: avoidance

Regulation 5(3A) SI1994/3227(which was inserted by Regulation 4 of the amending regulations - see CTM76510) was introduced to stop an avoidance scheme which took advantage of the time limits for making a matching election or increasing the amount of an asset to be matched. The scheme involves two elections:

• an election under Regulation 10 (2)(c)(i) or 10 (2)(c)(ii) to match a (very) small part of a newly acquired asset or an asset held at commencement,
• a subsequent election under Regulation 10(3) to increase the amount or proportion of the asset to be matched with the effect backdated under Regulation 11 (3).

Because of the time limits available for making the elections:

• where an initial exchange loss had accrued on a liability eligible to be matched with the asset in the period from the date the first election was effective to the date the second election was effective, relief could be sought for that loss,

but

• where an initial exchange gain had accrued on a liability for the same period, assessment of that gain could be deferred.

Regulation 5(3A) ensures that where:

• only a proportion of a liability is matched with an asset, or
• the company owes a liability eligible to be matched with that asset at the time the election is made, but is not matched,

then relief will not be given in the accounting period for any initial exchange loss taken to reserves in the company's accounts.

But relief for such a loss may be given when an asset within categories (1), (2), (3) or (6) in CTM76540 is disposed of (see CTM76640).

An article setting out how this regulation will be applied in practice was published in the August 1996 edition of Tax Bulletin.

Inspectors should follow the guidance in that article which is reproduced at CTM76810.

Cases of doubt or difficulty should be submitted to CT&VAT (Technical)