Where transfer-pricing rules operate to impute interest (or a
higher rate of interest) on the whole of an outward loan, all the
exchange gains and losses continue to be recognised in full.
However, because of FA96/SCH9/PARA11A, exchange gains or losses on
creditor loan relationships are to be disregarded only where, and
to the extent that, the loan fulfils an equity function.
For further information see CFM9820.
FA93/S136 to FA93/S138 provide for the ring fencing of exchange
losses on a loan or forward currency contract which is entered into
otherwise than on arm’s length terms. Such losses are
available for relief only against future exchange gains arising on
the same loan or contract.
For outward loans where SCH28AA applies to impute interest or
a higher rate of interest any exchange losses will be allowed in
full.
