Chapter 12: Priority rules
Section 699: Priority of this Part for corporation tax purposes
1936.This section provides that this Part has priority, as regards amounts brought into account in accordance with it in respect of any matter, over any corporation tax provision that would otherwise apply. It is based on paragraph 1(2) of Schedule 26 to FA 2002.
1937.This rule covers not only the case where an amount is dealt with under sections 573 or 574 but also a case to which Chapter 7 applies.
1938.Subsection (3) lists particular cases where the rule is disregarded.
1939.Section 700 deals with the case where Part 5 (loan relationships) has priority over this Part. If that Part applies to any amounts, those amounts are not in fact brought into account in accordance with this Part and so this section cannot apply.
Section 700: Relationship of this Part to Part 5: loan relationships
1940.This section gives priority to Part 5 if the amount that would otherwise be brought into account under this Part, or (if different) the profit or loss accruing to the company on the derivative contract, is brought into account under that Part. This section is based on section 101 of FA 1996.
1941.This rule covers, for example, the case where a loan relationship arises from the conduct of a derivative contract (say, if one party defaults on a payment in the course of an interest rate swap and so owes money to the other). A payment due in respect of the loan relationship is dealt with under Part 5 and not under this Part.
1942.Subsection (3) sets out the significant exception to the general rule, that is, in a case where section 585 (loan relationships with embedded derivatives) applies. This Part applies instead of Part 5 to profits and losses in respect of an embedded derivative that is a derivative contract.
