CFM86120 - Old rules: forex and accounts drawn up in a foreign currency: pre 2005: transactions in foreign currencies

Exchange rate to be used

This guidance applies for accounting periods between 1 October 2002 and 1 January 2005

A company that accounts in sterling must compute its corporation tax profits and losses in sterling (FA93/S92(1)). In order to do that, it must translate

  • any receipts or expenses in foreign currencies, and
  • the value of any assets, liabilities and derivative contracts denominated in foreign currencies

into sterling. It doesn바카라 사이트™t, of course, have to make such translations solely for tax purposes - translating foreign currency transactions, assets and liabilities into sterling is an integral part of preparing the company accounts.

FA93/S94AA(4) says that for tax purposes you use whatever exchange rate the company has used in its accounts, provided that it is an arm바카라 사이트™s length rate for the 바카라 사이트˜relevant day바카라 사이트™.

Arm바카라 사이트™s length rate means an exchange rate that might reasonably be agreed between people dealing at arm바카라 사이트™s length. It does not have to be the published spot rate for the day. If the company does not use an arm바카라 사이트™s length rate in its accounts, the London closing rate is used instead.

바카라 사이트˜Relevant day바카라 사이트™ means the day on which the translation falls to be made. If the company, in preparing its accounts, uses an average rate for a number of days, each of these days is a relevant day. And FA93/S94AA (5) makes it clear that, if the company has used the rate implied by a currency contract to value an asset or liability, that implied rate is also an arm바카라 사이트™s length rate.

There is an example at CFM86130.