Exchange gains and losses in trading companies

Section 79 Taxes Consolidation Act 1997 clarifies the tax treatment for trading companies of exchange gains and losses derived from converting cash balances and trade creditor balances. It also sets out the tax treatment of exchange gains and losses arising from hedging contracts. Essentially the section provides that the tax treatment of exchange gains and losses on these items should follow accountancy treatment which is governed by SSAP 20. This provides that exchange gains and losses on these items are brought into the profit and loss account regardless of whether they are realised or unrealised. Exchange gains and losses of companies arising in a trading context on these items are, therefore, brought into account for tax purposes. Exchange gains and losses arising on non-trading assets (e.g. investments) are not governed by Section 79 but are subject to normal capital gains tax rules. Where the investment is in the form of cash in a bank please see the paragraph “CGT Foreign Currency Gains/Losses arising otherwise than in the course of a trade” overleaf.

Paragraph 1 Schedule 2 Finance Act 1998 ensures that any gains or losses arising to a trading company on1 January 1999 as a result of the conversion of a currency to the euro will be treated for tax purposes in same way as gains or losses on foreign currency transactions are treated under Section 79 Taxes Consolidation Act 1997.