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HMRC internal manual

Corporate Finance Manual

Foreign exchange: accounts drawn up in a foreign currency: designated currency election: overview


A UK investment company that has adopted IAS 21/ FRS 23 is likely to have less flexibility over which functional currency is used than under UK GAAP. Under IAS 21/ FRS 23 an investment company’s functional currency is likely to be that of its immediate parent company. This can create exchange rate volatility where the investment company’s assets and liabilities are different to that of its functional currency.

CTA10/S9A and S9B allow investment companies to make an election to change their functional currency for tax purposes to another currency (the ‘designated currency’) provided that they meet one of two conditions (CFM64520). Investment companies can make a designated currency election for periods of account beginning on or after 1 April 2011.

‘Investment company’ is defined in CTA10/S17(3A) as a company whose business consists wholly or mainly in the making of investments and the principal part of whose income is derived from those investments.

A designated currency election must specify the date on which the election is to take effect and must be made in advance of the date it is to take effect.

Where a valid designated currency election is made, an investment company’s foreign exchange gains and losses are computed for tax purposes on the basis of the designated currency from the date specified in the election.


In the example in CFM64120, Tychpin Ltd could, subject to meeting the conditions in CTA10/S9A and S9B, elect for its functional currency for tax purposes to be Euros. If it were to do so, the profits or losses arising on the Euro-denominated assets, liabilities or transactions will not include forex gains and losses as the profit has been calculated in the Euro functional currency without the inherent forex exposure.