Until 2005, if there had been no special legislation to take account of the fact that a CFC’s profits are more than likely calculated in a currency other than sterling, in computing its chargeable profits exchange differences on items such as qualifying assets, qualifying liabilities and currency contracts held for non-trading purposes by a CFC would have to be computed by reference to sterling. This could have lead to problems where, for example, a CFC would have to distribute unrealised exchange gains to enable it to pursue an acceptable distribution policy (ADP).

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