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HMRC internal manual

Corporate Finance Manual

Foreign exchange: matching under the Disregard Regulations: regulation 4: matching using derivatives

When does regulation 4 apply?

Matching may be done using a derivative, such as a cross-currency interest rate swap or a currency forward, rather than a loan relationship liability.

Matching of shares, ships or aircraft is permitted for tax purposes (provided they are not held for trading - see CFM62840) and either of the following hedging conditions is met.

As for regulation 2 the conditions are:

Condition 1

  • the derivative is a designated fair value hedge, or

Condition 2

  • it is intended to act as a hedge of the exchange risk on the asset (or part of the asset).

For more on how intention is demonstrated see CFM62640.

As with previous matching regimes, tax matching only works where the asset and the matched derivative are in the same company.

Derivatives can also be used to match a company’s own shares in certain circumstances - see CFM62850.

In the accounts of the company, the derivative contract may be accounted for at fair value. In such cases, SI 2005/3422 sets out how you arrive at the exchange gain or loss, which is disregarded - in broad terms, it is the change in fair value attributable to the currency exposure.