»Ê¹ÚÌåÓýapp

Avoidance using dual currency loans and options

Foreign exchange movements are an integral part of the loan relationships and derivative contracts rules, so in many cases anti-avoidance rules - in particular the ‘unallowable purposes� rules - will apply to forex movements as they do to any other kind of debit or credit. Two provisions, however, are specific to forex.

»Ê¹ÚÌåÓýapp first of these concerns transactions which can be said to take place not at arm’s length. »Ê¹ÚÌåÓýappre is more on this at CFM38510 - CFM38590.

»Ê¹ÚÌåÓýapp second concerns so-called ‘one-way betâ€� schemes. »Ê¹ÚÌåÓýapp common factor of such schemes is that if the exchange rate for a particular currency moves in one direction a foreign exchange loss is claimed, whereas if the rate moves in the other direction there is no corresponding gain. »Ê¹ÚÌåÓýapp schemes involve intra-group loans or derivatives, which are eliminated on consolidation, so there is no effect on the group’s overall financial results.

»Ê¹ÚÌåÓýappre is an example of a ‘one-way betâ€� scheme, using a dual currency loan, at CFM63020.

Regulations were introduced in 2006 (»Ê¹ÚÌåÓýapp Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2006 - SI 2006/843) to counter particular schemes of this sort. »Ê¹ÚÌåÓýappse came into force on 22 March 2006, and are described at CFM63030.

»Ê¹ÚÌåÓýappse regulations were revoked by FA 2009, and replaced by new targeted anti-avoidance rules (‘TAARâ€�) in CTA09/S328A (for loan relationships) and CTA09/S606A (for derivative contracts), which prevent exchange gains from being matched where a ‘one-way exchange effectâ€� is present. Guidance on these provisions is at CFM63100 onwards. »Ê¹ÚÌåÓýapp new rules apply from 22 April 2009, and the 2006 Regulations cease to have effect on the same date.

For periods or part-periods to which the 2006 Regulations apply, Regulation 4 (CFM63030) deals with schemes involving dual currency loans, and Regulation 5 (CFM63040) with option schemes.