Corporation Tax Act 2009 section 328D

Counterfactual currency movement assumptions

Section 328D establishes the hypothetical currency movement assumptions that must be applied when calculating the expected exchange gains or losses under the unallowable purposes rule for loan relationships.

• When testing whether a loan relationship has an unallowable purpose, it is necessary to consider what exchange gains or losses would have arisen if the company had only had allowable purposes.
• The counterfactual scenario assumes that the company would have entered into a loan relationship in the same currency and on the same terms as the actual relationship, but only to the extent justified by its allowable purposes.
• Any exchange rate movements that actually occurred are applied to the hypothetical loan relationship to determine what exchange gains or losses would have resulted in the absence of the unallowable purpose.
• This provision was introduced by Finance (No. 2) Act 2015 as part of the reformed rules on loan relationships with unallowable purposes, ensuring that exchange movements are dealt with consistently within the counterfactual analysis.

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