Plain vanilla contracts which became derivative contracts before 30 December 2006
3557.This paragraph modifies the amounts otherwise allowable as acquisition costs under section 38 of TCGA on the disposal of a plain vanilla contract if the disposal occurs because the company ceases to be a party to the contract. It is based on paragraph 4D of Schedule 26 to FA 2002.
3558.There are two conditions to be met. The first is that the plain vanilla contract was previously not a derivative contract but became one at a date before 30 December 2006. Although the paragraph does not specify in what circumstances the contract became a derivative contract, it is likely to be the case that it had ceased to satisfy the conditions in section 589 (contracts excluded because of underlying subject matter: general) under which the underlying subject matter of the contract was “excluded property”.
3559.The second condition is that neither of the two preceding paragraphs applies on the company ceasing to be a party to the contract.
3560.30 December 2006 is the date by reference to which the amendments made by the Finance Act 2002, Schedule 26, (Parts 2 and 9) (Amendment) Order 2006 (SI 2006/3269) have effect.
3561.Sub-paragraph (2) disapplies section 699 (priority of Part 7 for corporation tax purposes) in respect of a disposal to which this paragraph applies (that is, the provisions of this paragraph do not exhaust the application of the Corporation Tax Acts to this disposal).
3562.The adjustments made by this paragraph to the acquisition costs allowable under section 38 of TCGA are similar to those made by a number of provisions in Chapter 8 of Part 7. As with those sections, this paragraph in effect reverses the treatment of credits and debits in respect of the derivative contract so that double counting is avoided when the contract is disposed of.
3563.And similarly again to those sections, if the adjustment to be made under sub-paragraph (3) is a reduction that exceeds the amounts otherwise allowable under section 38 of TCGA, the excess is added to the consideration for the disposal.
3564.“Plain vanilla contract” is defined in section 708.
