Structured foreign exchange arrangements
The Government has announced that a technical note will be published in the summer that will set out the issues and potential approaches to structured finance arrangements, often described as overhedging or underhedging. Generally these transactions have sought to take advantage of an interest rate differential between two currencies, with any foreign exchange exposure being hedged through a group's tax line.
The Government has acknowledged that such arrangements may not be undertaken for tax avoidance, but it is putting foreign exchange risk on the Exchequer that would otherwise be borne by the taxpayer. There has been no further statement or guidance as to what impact the technical note will have, or further steps that the Government may seek to make.
The taxation of foreign exchange is a complicated area and any changes can have far reaching unintended consequences on commercial transactions. We hope that the approach will be to have a wide consultation period if it was decided that further steps are required, to ensure that this will not impact taxpayer's current hedging positions.
