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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Derivative contracts: partnerships: net investment hedging by partnerships

Partnerships and forex matching

A partnership may use a currency contract to hedge an investment in a foreign entity. And it may, in accordance with GAAP, take exchange gains or losses on the currency contract to a reserve and match them with exchange losses or gains on the asset (CFM62000+ deals in detail with the matching rules).

Where a partnership takes exchange gains or losses on a derivative contract to a reserve in this way, CTA09/S620(4) provides that the company partner is treated as taking exchange gains and losses to reserves to the same extent, for the purposes of computing the total credits and debits. Although this treatment is permissible only under SSAP20 and would not be found where the partnership accounts under IFRS, the statute spells out that ‘reserves’ means the statement of total recognised gains or losses, statement of recognised income or expenses, statement of changes in equity or statement of income and retained earnings.