HM Revenue and Customs Brief 10/08
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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
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
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
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.
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updated regularly and may be out of date at time of reading.
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Article Published/Sorted/Amended on Scopulus 2008-02-29 00:25:46 in Tax Articles