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Foreign Exchange Gains And Losses

Volume 983: debated on Monday 28 April 1980

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asked the Chancellor of the Exchequer (1) what principles are applied by the Inland Revenue in its current practice concerning the treatment of foreign exchange gains and losses, whether realised or unrealised, in respect of foreign currency borrowings and loans made by companies registered in the United Kingdom pursuant to the Inland Revenue statement dated 6 October 1976 in drawing the distinction, mentioned in the 1976 statement, between borrowings regarded as being from fixed as distinguished from those on circulating capital accounts;(2) whether any distinction is drawn by the Inland Revenue in its current practice concerning the treatment of foreign exchange gains and losses, whether realised or unrealised, in respect of foreign currency borrowings and loans made by companies resident in the United Kingdom pursuant to the Inland Revenue statement dated 6 October 1976 between borrowings for a short term and those for a longer term;(3) whether any distinction is drawn by the Inland Revenue in its current practice concerning the treatment of foreign exchange gains and losses, whether realised or unrealised, in respect of foreign currency borrowings and loans made by companies resident in the United Kingdom pursuant to the Inland Revenue statement dated 6 October 1976 between borrowings raised by companies from external lenders, whether or not with the benefit of guarantees from other members of the borrowing company's group, and those raised from lenders within the borrower's group;(4) if he will outline the current Inland Revenue practice concerning the treatment of foreign exchange gains and losses, whether realised or unrealised, in respect of foreign currency borrowings and loans made by companies resident in the United Kingdom and in particular to supplement the Inland Revenue statement dated 6 October 1976;(5) whether any particular criteria are applied by the Inland Revenue in its current practice concerning the treatment of foreign exchange gains and losses, whether realised or unrealised, in respect of foreign currency borrowings and loans made by companies registered in the United Kingdom pursuant to the Inland Revenue statement dated 6 October 1976 to finance companies controlled from overseas which borrow foreign currency for conversion into £ sterling to lend out in the United Kingdom in the course of their business operation;(6) if he will make a statement upon the current Inland Revenue practice concerning the treatment of foreign exchange gains or losses, whether realised or unrealised, in respect of foreign currency borrowings and loans made by companies resident in the United Kingdom and pursuant to the Inland Revenue statement dated 6 October 1976 in the light of the Marine Midland case, in circumstances similar to those under discussion in that case.

[pursuant to his replies, 22 and 23 April 1980, Vol. 983, c. 126, and Vol. 984, c. 149–50]: I cannot usefully add to what was said about Inland Revenue practice in the consultative document " Borrowings in Foreign Currency " to which my hon. Friend refers. The practice has not changed since 1976. The existing tax law and practice is not straightforward and whilst the distinction between fixed and circulating capital is based on principles well established in tax case law, much can turn on the facts of individual cases. As my hon. Friend's final question indicates, he is aware that the Inland Revenue's interpretation of the existing law is currently being challenged and a test case—the Marine Midland case—is due to be considered by the courts later this year. The Department will continue to study the issues involved in the light of the litigation and relevant economic developments, for example the removal of exchange control. The time is not ripe at present for any further statement of practice to be made.