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Foreign exchange regulations

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The Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) (Amendment No. 2) Regulations, SI 2011/2912, are intended to put beyond doubt that the disregard regulations – which ensure that certain transactions continue to be ‘tax neutral’ following the introduction of revised accounting standards – only apply at the point that a company has a foreign currency loan relationship liability which is a hedge of foreign currency shares, ships or aircraft.

The clarification follows disclosure of an avoidance scheme in which companies claim to permanently defer foreign exchange gains ‘by retrospectively designating the loan relationship as a hedge of newly acquired foreign currency share capital’, said David Gauke, Exchequer Secretary to the Treasury, in a written ministerial statement.