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HMRC internal manual

Corporate Finance Manual

Foreign exchange: matching: bringing amounts back into account: reorganisations of share capital

Reorganisations of share capital within TCGA92/S127

Reorganisations taking place before 6 April 2010

A reorganisation or reduction of a company’s share capital that falls within TCGA92/S126 is not normally treated as involving any disposal of the original shares. Instead TCGA92/S127 provides that the new asset and the original asset are treated as being the same asset. (There is guidance on reorganisations of share capital at CG51700+.)

Where an exchange gain or loss has arisen on a liability or currency contract matched with the shares, regulation 11, SI2002/1970 applies so that the amount that would have been brought into charge under regulation 4 (CFM62300) is calculated.

If it is an exchange gain, it is treated as increasing the consideration on a subsequent disposal.

If it is an exchange loss, it is deducted from the consideration received. If the exchange loss exceeds the consideration, an allowable loss is treated as accruing (under the CG rules).

There is an example of this in CFM62430.

Reorganisations taking place on or after 6 April 2010

Under the amended EGLBAGL Regulations, no special rule is needed for reorganisations of share capital, and regulation 11 is omitted.

A share-for-share exchange, or other reorganisation of share capital, is not treated as a disposal of the original shares where TCGA92/S127 applies. Thus nothing triggers any ‘bringing back into account’ of exchange differences at the time of the reorganisation. Amounts will be brought back into account when there is a disposal (or part disposal) of the ‘new holding’.

TCGA92/S127 also treats the new holding and the original shares as being the same asset. The application of this ‘statutory fiction’ is not limited to TCGA 1992, so - when there is a disposal of the shares making up the new holding - references in the EGLBAGL Regulations to liabilities, or obligations under a currency contract, being matched to an asset will include hedging instruments that have been matched to the ‘original shares’ as well as those matched to the ‘new holding’.

The resultant net gain or net loss will either increase or decrease the disposal consideration for the new holding of shares (see CFM62290 for the basic mechanism). The overall effect is therefore precisely the same as was previously given by regulation 11.