Foreign currency gains gives rise to interesting jurisdictional points on the Liechtenstein Disclosure Facility and COP 8

January 1, 2017

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The First-tier Tribunal has given a detailed decision in an appeal against discovery assessments to capital gains tax that HMRC made in consequence of the Appellant’s disposal of a property in Switzerland (declared via the Liechtenstein Disclosure Facility, the “LDF”) and associated penalties. The main issue was which method should was the correct method to calculate the chargeable gain on disposal:

  • Method A (Appellants’ method): Calculate the gain that the Appellants made in Swiss Francs by subtracting the aggregate of the expenditure that they had incurred in respect of that property (in Swiss Francs) from the Swiss Franc disposal proceeds, thus producing a gain in Swiss Francs to be converted into sterling at the exchange rate applicable on the date of disposal for the purposes of calculating their CGT liability.
  • Method B (HMRC method): Convert each item of expenditure incurred in respect of the property, including the cost of acquisition, into sterling at the exchange rate applicable on the date that expenditure was incurred and deduct the sum of those sterling amounts from the sterling equivalent of the sale proceedings (arrived at by converting the Swiss Franc disposal proceeds into sterling at the exchange rate applicable on the date of disposal.

The Tribunal judge found that he was bound by the Court of Appeal’s decision in Capcount Trading v Evans (HM Inspector of Taxes) [1993] STC 11 and the High Court’s decision in Bentley v Pike (Inspector of Taxes) [1981] STC 60, so Method B was correct. The point of principle arising out of the Court of Appeal’s decision in Capcount was that foreign currency was a distinct asset for CGT purposes. Thus, expenditure in foreign currency is expenditure consisting of giving up a distinct asset, not expenditure in money, and it falls to be valued by converting the foreign currency into sterling at the exchange rate prevailing on the date of expenditure. Similarly, receipts in foreign currency are receipts of separate assets which need to be converted into sterling at the rate prevailing on the date of receipt.

This article appears in the JHA January 2017 Tax Newsletter, which also features:

  1. Supreme Court rejects Government’s Article 50 appeal by Ramsey Chagoury
  2. Refusal to exempt dividends from WHT not permitted by Cristiana Bulbuc
  3. Advocate General Wathelet identifies a remedy of “direct loss” in EU law by Ramsey Chagoury
  4. Interest on payments of duties wrongly collected by Cristiana Bulbuc

You can download the complete newsletter as a PDF here: January 2017 – Tax Newsletter.