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HMRC internal manual

Corporate Finance Manual

Foreign exchange: matching: anti-avoidance: FA 2009: ‘one way exchange effect’: meaning of 'part of arrangements'

Meaning of ‘part of arrangements’

‘Arrangements’ are defined widely at CTA09/S328H(3) (for loan relationships) or CTA09/606H(3) (for derivative contracts) to include any agreements, understandings, schemes, transactions or series of transactions, whether or not legally enforceable. In deciding whether or not a loan relationship or relevant contract is part of an arrangement, regard can be had to the circumstances in which it was entered into, the currency in which it is denominated, and its likely effect - but the statutory list is not exhaustive, and other factors may be taken into account.

There is no requirement that financial instruments or transactions forming part of an arrangement must be entered into at the same time, and it is possible for financial instruments that have been put in place for wholly commercial reasons to subsequently become part of an avoidance arrangement.

For example, in the dual currency loan scheme described at CFM63010, the dual currency loan would be part of an arrangement that also includes the shareholding in the US dollar subsidiary and the external borrowing by Plc. The effect of these three components is to achieve an economic hedge of the group’s US investment while potentially generating an allowable forex loss (but not a corresponding taxable gain), and all three components operate together in achieving this effect. It would not matter if the shareholding and external borrowing had been in place for some time, and the dual currency loan was added later.