Taxes Consolidation Act 1997 section 79

Foreign currency: computation of income and chargeable gains

Section 79 provides that foreign exchange gains and losses on trade-related monetary items and hedging contracts are treated as trading income for corporation tax purposes, rather than as capital gains or losses.

• Foreign exchange gains and losses on trade receivables, trade bank accounts, trade cash holdings and trade creditors are brought into the computation of trading income as they appear in the company's audited profit and loss account, whether realised or unrealised.
• Hedging contracts (such as swaps and forward rate agreements) entered into to manage exchange rate risk on trade-related items are treated on the same basis, ensuring that offsetting gains and losses balance out for tax purposes just as they do commercially.
• Trade-related foreign exchange gains and losses brought into trading income are excluded from the chargeable gains and allowable losses computation, except in the case of certain life assurance companies.
• Where a company has a functional currency other than the euro, exchange gains or losses on contracts hedging its corporation tax liability are not treated as chargeable gains or allowable losses, subject to a cap equal to the corresponding exchange movement on the tax liability itself.