Introduction Background Note
73.Where a company computes its profits or losses for corporation tax purposes in a currency other than sterling current tax rules require that company to carry forward or back any unused losses in sterling. This rule leads to exchange exposure for both companies and the Exchequer. This exposure has become a significant issue recently for a number of companies whose profits are computed for tax purposes in a currency other than sterling due to exchange rate volatility. This means that the measure of losses translated into sterling when incurred will offset a different measure of profits translated into sterling arising in a previous or subsequent accounting period.
74.In response to this, a written statement presented to Parliament by the Financial Secretary to the Treasury dated 18 December 2008 announced the Government’s intention to allow companies to carry forward and back unused losses in the currency in which they were computed.
75.The purpose of this Schedule is therefore to ensure that losses computed in a currency other than sterling offset the same measure of profits computed in that currency for the earlier or later period.
76.There are also rules that seek to remove the impact of currency fluctuations on the value of losses where a company has losses that have been computed in sterling in one accounting period that are then offset in an earlier or later accounting period when the profits of the company are computed in a non-sterling currency.
77.In order to bridge the change in treatment of foreign denominated losses, transitional rules will apply where a company has unused losses brought forward at the start of the first accounting period after the commencement of this section and those losses were computed in a currency other than sterling. In these cases the brought forward losses will be converted back into the currency in which they originated, although an election is available to allow companies to only apply the changes outlined above to losses incurred in accounting periods beginning on or after the date of Royal Assent.