Plans to alter forex tax rules prompt outcry
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Your support makes all the difference.LONDON'S position as the world's largest foreign exchange market is being threatened by new Inland Revenue rules which dealers fear could cost them hundreds of millions of pounds.
The IR plans to change the way currency gains and losses are taxed. It is feared the move could damage London as a financial centre by increasing the bureaucratic burden and deterring currency traders from dealing in the UK.
The IR wants to iron out anomalies in the tax treatment of foreign exchange gains and losses. The intention is supported by dealing firms and the corporate treasury departments of UK multinational companies. But the proposed solution has caused an outcry.
Critics say the complexity of the changes will mean companies having to invest in sophisticated computer software to cope. One foreign company operating in London wrote to the Treasury complaining it would have to spend pounds 7m on computer equipment which would take two years to get up and running.
Under the present system, gains and losses from currency fluctuations are taxed unequally, sometimes at the year-end and sometimes not for several years. Some are treated as trading profits or losses, others as capital gains or losses.
In certain cases, currency differences fall outside the tax system altogether. Instead, the plan is to put all exchange differences on to income account, monitoring gains and losses as they accrue throughout the year.
The IR is demanding that companies keep a transaction- by-transaction calculation of the differences. Multinationals with scores of subsidiaries cannot just keep group records but will have to itemise currency translation for individual companies. Derek Ross, a partner at Touche Ross, said: 'It will double the workload of companies and involve them in paying a tremendous attention to detail.'
A tax expert at one merchant bank said: 'More and more taxpayers have to do the Revenue's work. It means companies will have to make complex decisions quickly. It could be a nightmare and a real turn-off for companies trading in the London market.'
The proposals are contained in the Finance Bill, which will be enacted later this year. However, the IR has not fixed a date for the implementation of the new regime.
It issued its consultative proposals in 1991, and any further revision of the plans is unlikely. A spokesman denied the changes would impose much more of a burden on companies.
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