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GAAR panel opinion on losses involving currency forward purchase contracts

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The GAAR advisory panel has published its opinion on arrangements entered into by an individual involving two currency forward purchase contracts, both based on the sterling/US dollar exchange rate and which substantially mirrored each other. The panel’s conclusion was that the entering into and carrying out of the arrangements was not a reasonable course of action in relation to the relevant tax provisions.

Under the contracts, the individual would receive either certificates of deposit or gilts, to a pre-determined value, depending on where the underlying index stood on the specified date in relation to an upper and lower barrier.

The panel observed that, although various outcomes were possible under the contracts, there was no possible outcome where the individual would make a pre-tax profit after fees and expenses.

The panel acknowledged that the provisions on certificates of deposit  in ITTOIA 2005 Part 4 Chapter 11 and ITA 2007 s152 were intended to allow losses made on transactions in certificates of deposit to be used to relieve other relevant taxable income, while the gilts provisions in TCGA 1992 s115 were intended to provide exemption for capital gains on transactions in gilts.

However, whereas the certificates of deposit  provisions contemplated a real economic loss, the transactions under consideration appeared to be ‘without any purpose other than to enable the individual to attempt to claim a tax-relievable loss on the sale of the certificates of deposit and an exempt gain on the sale of the gilts’.

Issue: 1480
Categories: News