Font Size

HM Revenue and Customs Brief 10/08

 By

HM Revenue and Customs -Tax Authorities

Tax Articles
Submit Articles   Back to Articles

Issued 26 February 2008

Changes to the Corporation Tax rules on 'forex matching'

This Revenue and Customs Brief draws attention to changes in the tax rules where companies use derivatives or borrowing to hedge foreign exchange exposure arising from holding shares in an overseas subsidiary, or similar assets. Detailed guidance on the new rules can be accessed from this Brief.

A company that has invested in an overseas business (or a UK business that operates in a different currency) will be exposed to foreign exchange movements. It will often borrow in foreign currency, or use currency derivatives, to hedge that exposure. SI 2004/3256, the so-called 'Disregard Regulations', contains provisions allowing certain foreign exchange gains or losses on such hedging instruments to be disregarded for Corporation Tax purposes, to allow the tax position to replicate the commercial effect of the hedging. This process is often referred to as 'forex matching'.

These rules were amended by regulations (SI 2007/3431) laid in December 2007. The main change is that companies holding shares that give rise to a foreign exchange exposure - in most cases, shares in an overseas subsidiary, are no longer restricted to using the accounts value of the shares – which will normally be their cost – to determine how much of a hedging instrument is 'matched'.

If the company so elects, it can match the 'underlying net asset value' of the shares, if that is more than the accounts value. In broad terms, 'underlying net asset value' means the value of the foreign currency assets, less the foreign currency liabilities, held by the subsidiary concerned or its sub-subsidiaries.

For most companies, the time limit for the election is the later of:

  • 31 March 2008
  • 30 days from the start of the company’s first accounting period beginning on or after 1 January 2008.

Thus a company preparing accounts to 31 December each year will need to make an election by 31 March 2008. There is provision for companies to make a later election if they do not hold any 'matched' shares at the start of their first accounting period beginning on or after 1 January 2008. The election is irrevocable.

New guidance will shortly be published in HMRC’s Corporate Finance Manual on forex matching under the Disregard Regulations, including the effect of the changes made last December. An advance copy (PDF 147K) http://www.hmrc.gov.uk/briefs/company-tax/cfm9400.pdf of this guidance is available.

Any questions on the changes, or feedback on the guidance, should go to:

Email: Sue Davies
CT&VAT (Financial Products Team), third floor, 100 Parliament Street, London SW1A 2BQ; or
Email: Aiden Reilly at the same address.


About the Author

© Crown Copyright 2008.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.



Follow us @Scopulus_News

Article Published/Sorted/Amended on Scopulus 2008-02-29 00:25:46 in Tax Articles

All Articles

Copyright © 2004-2019 Scopulus Limited. All rights reserved.