Corporation Tax Act 2009

Transactions with non-UK residents

696 Derivative contracts with non-UK residents

(1) This section applies in relation to a company (“A”) if, as a result of any transaction—

(a) A becomes a party to a derivative contract to which a non-UK resident (“NR”) is a party,

(b) NR becomes a party to a derivative contract to which A is a party, or

(c) A and NR both become a party to a derivative contract.

(2) For each accounting period for any part of which A and NR are both a party to a derivative contract which makes provision for notional interest payments, the credits and debits which fall to be brought into account in accordance with this Part in respect of the contract in the case of A do not include the amount of any excluded debit in relation to that contract.

(3) The amount of an excluded debit is calculated by determining for the accounting period the amount (if any) by which—

(a) the sum of any notional interest payments made by A to NR while A and NR are both a party to the contract,

exceeds

(b) the sum of any notional interest payments made by NR to A during that time.

(4) For the purposes of this section, a payment is a notional interest payment if—

(a) a derivative contract specifies—

(i) a notional principal amount,

(ii) a period, and

(iii) a rate of interest,

(b) the amount of the payment is determined (wholly or mainly) by applying a rate to the specified notional principal amount for the specified period, and

(c) the value of the rate is the same at all times as that of the specified rate of interest.

(5) This section is subject to section 697.

697 Exceptions to section 696

(1) Section 696 does not apply if A—

(a) is a bank, building society, financial trader or recognised clearing house,

(b) is a party to the derivative contract solely for the purposes of a trade or part of a trade it carries on in the United Kingdom, and

(c) is a party to it otherwise than as agent or nominee of another person.

(2) Section 696 does not apply if NR—

(a) is a party to the derivative contract solely for the purposes of a trade or part of a trade which NR carries on in the United Kingdom through a relevant entity, and

(b) is a party to it otherwise than as agent or nominee of another person.

(3) Section 696 does not apply if arrangements made in relation to the territory in which NR is resident—

(a) have effect because of section 788 of ICTA (double taxation relief), and

(b) make provision in relation to interest (as defined in the arrangements).

(4) It does not matter whether the provision mentioned in subsection (3)(b) is for relief or otherwise.

(5) If NR is a party to the contract as agent or nominee of another person, subsection (3) applies as if the reference to the territory in which NR is resident were a reference to the territory in which that other person is resident.

(6) In this section—

• “recognised clearing house” has the meaning given by section 285 of FISMA 2000 (exemption for recognised investment exchanges and clearing houses), and

• “relevant entity” means—

  (a)

  if NR is a company, a permanent establishment, and

  (b)

  if that is not the case, a branch or agency.