Taxes Consolidation Act 1997 section 402

Foreign currency: tax treatment of capital allowances and trading losses of a company

Section 402 allows companies whose primary operating currency is not the euro to calculate capital allowances and trading loss relief in that functional currency, thereby preserving the real value of those allowances and reliefs.

• The "functional currency" is the currency of the primary economic environment in which a company operates, determined by reference to the currency in which revenues, expenses, borrowings, and lending are primarily denominated; where accounts are prepared in euro, euro is the functional currency.
• Capital allowances on expenditure incurred on or after 1 January 1994 must be computed in the functional currency; expenditure incurred in a different currency is converted at the representative rate of exchange on the day the expenditure was incurred.
• Trading losses are computed in the functional currency; when set off against profits, the functional currency amount of the relief is converted to euro at the average exchange rate for the accounting period in which the set-off is made.
• Where a company's functional currency changes, earlier computations are not disturbed, but outstanding expenditure, allowances, and losses are re-expressed in the new functional currency using the rate applicable at the time the expenditure was incurred or the loss arose.