CFM62210 - Foreign exchange: matching under SSAP 20: overview

Matching under SSAP 20

»Ê¹ÚÌåÓýapp tax treatment of foreign exchange transactions has undergone a number of changes in recent years and CFM62220 contains an overview of these.

Guidance on the current legislation is as follows:

  • For companies continuing to account under SSAP 20 using net investment hedging, CTA09/S328(3) provides for exchange gains or losses on loan relationships, which are taken to reserves, to be disregarded - see CFM62230. »Ê¹ÚÌåÓýappre is similar provision for derivative contracts at CTA09/S606(3).
  • »Ê¹ÚÌåÓýapp rules for bringing exchange gains or losses back into account when there is a disposal of the ‘matchedâ€� asset are to be found in SI 2002/1970 - the Exchange Gains and Losses (Bringing Back into Account Gains or Losses) Regulations 2002. Guidance is at CFM62260 onwards. »Ê¹ÚÌåÓýappse rules apply both to matching under both primary and secondary legislation.
  • Where companies have adopted International Financial Reporting Standards (IFRS), or the new UK standards modelled on IFRS, they can no longer use the ‘offset methodâ€� at individual company level to hedge net investment in a foreign operation. This means that CTA09/S328(3) and CTA09/S606(3) cannot apply. Instead, regulations made under powers in S328(4) and S606(4) allow ‘forex matchingâ€� to continue for tax puposes. »Ê¹ÚÌåÓýappre is more about this at CFM62600 onwards.
  • Transitional provisions arise in respect of the change in tax treatment in 2002 (see CFM86320).
  • »Ê¹ÚÌåÓýapp matching provisions have given rise to various anti-avoidance devices. Two sets of rules deal with these, those in relation to periods before 22 April 2009 and those after. See CFM63000 for more details. »Ê¹ÚÌåÓýapp effect of these rules is to prevent exchange gains (but not losses) from being matched where there is a ‘one-way exchange effectâ€�. Details are at CFM63020 onwards. A further change to S606 was introduced by FA09 to ensure that, for derivative contracts only, the matched gain or loss must be computed by reference to spot rates - CFM62250.