Taxation and Foreign Exchange Management

There is a wide variety of actions which management may take in order to cope with the effects of possible movements in exchange rates. The choice of which action to take must be considered in the context of tax planning, both from the point of comparing costs and benefits on an “after‐tax” basis, and also as to the timing of the relevant payments. As with most decisions in the international finance arena, the problem resolves itself to one of maximising the after‐tax return to the parent company, though many sub‐objectives may also be identified. In this article we shall firstly examine the tax implications of individual foreign exchange management actions for a UK‐based company; and secondly, we shall briefly examine some of the differences which exist in other national tax environments.