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A foreign exchange loss does not give rise to a Case 1 or Case 2 hybrid transfer deduction/non-inclusion mismatch. It is not within the scope of the rules.

An example of a transaction to which the dual treatment condition in s259DA(4) TIOPA 2010 might apply is a repo, see INTM552040.

It is quite possible that the in-substance borrower on a repo is a UK company with a sterling functional currency, but the sale and repurchase price are denominated in some other currency.

For example, a UK company with a sterling functional currency enters into a euro-denominated repo with a related party. Absent the hybrid and other mismatch legislation, the UK company would have been entitled (under s551 CTA 2009) to a deduction for both in-substance interest and an exchange loss on a debtor repo denominated in euros. »Ê¹ÚÌåÓýapp counterparty is not taxed either on deemed interest or any exchange difference. In this example the counteraction will deny the deemed interest deduction, but not the exchange loss.

»Ê¹ÚÌåÓýapp key point as regards the exchange loss is that it should not give rise to a quasi-payment within s259BB(2) TIOPA 2010.