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HMRC internal manual

International Manual

Controlled Foreign Companies: guidance relating to superseded legislation

Foreign exchange and currency accountThe assumption of United Kingdom residence in ICTA88/SCH24/PARA1 brings the overseas company within the foreign exchange gains and losses provisions of the Finance Acts. For accounting periods beginning before 16 March 2005 ICTA88/S747A requires an overseas company to compute its chargeable profits in the currency of account. That currency will then be the base currency for computing exchange gains and losses rather than sterling.

There is however a restriction on the foreign currency in which an overseas company can compute its chargeable profits. The company is locked into the currency of account used in the accounts of the company for its ‘first relevant accounting period’. The first relevant accounting period is the first accounting period for which an apportionment is due (or a direction was made under legislation prior to the changes introduced by FA98) or for which an acceptable distribution policy is pursued. This is necessary because a company is deemed to have continued United Kingdom residence for all periods subsequent to the first relevant accounting period and consistency is required for the purposes of computing foreign exchange gains and losses.

This section was repealed by FA2005/SS80, FA2005/SS104, FA2005/SCH4/PARA 24 and FA2005/SCH11PT2(6) with effect for accounting periods beginning on or after 16 March 2005.