Is foreign exchange causing you a tax headache?

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Did you know…

  • A net investment hedge in the group accounts may still leave you exposed to foreign currency risk from a tax perspective.
  • Tax computations must be prepared in the company’s functional currency, not the currency that the accounts are prepared in.
  • Foreign exchange gains and losses can be deferred for tax purposes under the ‘tax matching’ regime.
  • Unrealised foreign exchange gains and losses on loans made by a UK company to overseas subsidiaries are taxable, even where these amounts are not realised.
  • New rules apply for the carry back and carry forward of foreign currency losses.
  • The adoption of IFRS could cause a change in the tax treatment of foreign exchange amounts.
  • Foreign currency forward contracts may be treated differently for accounting and tax purposes.
  • Hedging through cross currency swaps may result in differences between book and tax treatment.

How EY can help
The taxation of foreign exchange is complex. Continuing volatility in the markets means that foreign exchange exposures that may have been relatively insignificant in the past, are now having a very significant impact on groups with foreign exchange risk. Tax-inefficient foreign exchange hedging strategies can be costly, but are avoidable with planning.

EY’s Financing & Treasury team look forward to discussing any questions you may have on your foreign currency and treasury tax issues.

Further information
For further information, please contact one of our specialists, listed to the right.