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HMRC internal manual

Corporate Finance Manual

Foreign exchange: matching: bringing amounts back into account: computation in straightforward cases

Company holds only one asset

In many cases, a holding company will own shares in a single overseas subsidiary, which are hedged by borrowing or by a currency contract. If the company sells the shares, it is relatively easy to identify which loans or derivatives have been matched, in whole or part, with the shareholding, even if the company’s hedging arrangements have changed during the period over which the shares were held.

In practice, a review of the tax computations for the relevant accounting periods will show what exchange gains or losses have been disregarded under the relevant ‘forex matching’ rules in each period. The amount to be brought back into account will be the aggregate of the previously disregarded gains or losses. There is, of course, no need to undertaken the exercise if substantial shareholdings exemption applies to the share disposal.