Foreign denominated losses
The measure
When a company incurs a loss computed in a foreign currency and then offsets that loss against profits in a different accounting period, the loss will be translated into sterling at the same exchange rate as the profits. Additionally, where a company changes its functional currency, losses will convert into the new functional currency at the spot exchange rate at the date of that change.
The measures address a potential mismatch in the current rules whereby losses in one period and profits offset by those losses in a different period are potentially translated into sterling at different exchange rates.
Who will be affected?
These measures affect companies that compute their profits and losses in a currency other than sterling, and have losses that are carried forward or back to other accounting periods.
When?
The measures apply retrospectively to accounting periods commencing on or after 29 December 2007. An election can be made to defer the commencement date until the first accounting period beginning on or after the 2009 Finance Bill receives Royal Assent.
We welcome the certainty that these measures will provide taxpayers by removing the potential foreign exchange exposure on losses calculated in a currency other than sterling.
