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Finance Act 2002

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This is the original version (as it was originally enacted).

Contracts which become derivative contracts: contracts within Schedule 5AA to the Taxes Act 1988

6(1)This paragraph applies if the conditions in sub-paragraphs (2) to (5) are satisfied in relation to any contract of a company.

(2)The first condition is that the company is a party to the contract immediately before and on its commencement day.

(3)The second condition is that the contract—

(a)was not a qualifying contract (within the meaning of Chapter 2 of Part 4 of the Finance Act 1994 (c. 9)) immediately before the company’s commencement day, but

(b)as from that day is a derivative contract.

(4)The third condition is that the contract was, immediately before the company’s commencement day, a transaction to which Schedule 5AA to the Taxes Act 1988 applied.

(5)The fourth condition is that, on or after the company’s commencement day, a relevant event occurs.

(6)For the purposes of this paragraph a relevant event is an event which would, if Schedule 5AA to the Taxes Act 1988 had continued to apply to the contract for the purposes of corporation tax, have given rise to an amount of profits falling to be charged under that Schedule.

(7)A credit representing that amount of profits (“a relevant credit”) shall be brought into account by virtue of paragraph 14(3) of Schedule 26 for the accounting period in which the relevant event occurs as if it were a non-trading credit falling to be brought into account for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 in respect of a loan relationship of the company.

(8)The amount of the relevant credit is the sum of—

(a)the amount of profits which would have been chargeable under Schedule 5AA to the Taxes Act 1988 if it had continued to apply to the contract, and

(b)the amount of any debits given by Schedule 26 in respect of the contract for the first new period and any subsequent accounting period ending with the accounting period in which the relevant event occurred,

less the amount of any credits given by Schedule 26 in respect of the contract for those accounting periods.

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