In Ball UK Holdings Limited v HMRC [2018] TC05920 the First Tier Tax Tribunal (FTT) considered whether changes in a group's functional currency met compliance with UK GAAP and corporation tax.

The facts are as follows

  • Ball UK Holdings Ltd (Ball UK) is an investment holding company acting as parent to the UK arm of a larger group. 
  • Ball UK’s immediate parent is in Luxembourg and its ultimate parent is a listed US company
  • It made a and received a number of loans within the group, normally denominated in sterling and with interest defined by reference to LIBOR
  • To avoid tax, Ball UK entered into a derivative transaction denominated in US dollars at the end of 2006 in order to switch from SSAP 20 to FRS 23 and change the functional currency
  • All important decisions were made by the board of the US ultimate parent
  • PwC (tax) advised on this transaction and PwC (audit) audited the final accounts
  • Ball UK prepared 2006 accounts in US dollars, on the basis this was the functional currency
  • This resulted in an exchange loss as the 2005 accounts were prepared in Sterling
  • HMRC took the view that the functional currency continued to be Sterling.
  • The relevant standard was FRS 23, with two questions to be answered
    • Was it actually applied? (fact)
    • Did Ball UK have to prove its interpretation was correct, or merely reasonable?
  • The taxpayer relied on an argument that the reference to “autonomy” in paragraph 11a “trumped” the economic tests
  • The FTT held that
    • The application of the standard must be reasonable, and there may be multiple such, but the interpretation on which it is based has to be correct
    • The taxpayer’s interpretation was not correct


US GAAP has Sterling as the functional currency for Ball UK in the consolidated accounts.  The FTT noted that it was entirely possible for different GAAP to give different results on this.

The taxpayer tried to argue that the treatment used was in accordance with the Big 4’s and HMRC’s published guidance; the FTT did not agree.

Paragraph 211 – “HMRC is a tax collecting body, not a body of accountants, and its views of accounting standards do not amount to GAAP”

Useful guides


External links

Ball UK Holdings Limited v HMRC [2014] TC 05920


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