Taxation (International and Other Provisions) Act 2010 (c. 8)

[F1 Part 10] U.K. [F1 Corporate interest restriction]

Textual Amendments

F1 Pt. 10: the existing Pt. 10 renumbered as Pt. 11 (except for ss. 375, 376 which are repealed), the existing ss. 372-374, 377-382 renumbered as ss. 499-507 and a new Pt. 10 (ss. 372-498) inserted (with effect in accordance with Sch. 5 para. 25(1)-(3) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 1, 10(1)(2)(a)(3) (with Sch. 5 paras. 27, 32-34)

Modifications etc. (not altering text)

C1 Pt. 10 excluded by 2010 c. 4, s. 937NA (as inserted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 7)

C2 Pt. 10 excluded by 2010 c. 4, s. 938V(d) (as substituted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 9)

C3 Pt. 10 excluded by 2010 c. 4, s. 938N(e) (as substituted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 8)

[F1 CHAPTER 7 U.K. Group-interest and group-EBITDA

Treatment of derivative contracts in financial statements of worldwide group U.K.

420 Derivative contracts subject to fair value accounting U.K.

(1) This section makes provision about the amounts recognised in a worldwide group's financial statements for a period of account (“the relevant period of account”) in respect of derivative contracts.

(2) Subsection (3) applies where one or more excluded derivative contract amounts are recognised in the group's financial statements for the relevant period of account as items of profit or loss.

(3) The financial statements are treated for the purposes of this Part (apart from this section) as if the excluded derivative contract amounts were not recognised in the group's financial statements for the relevant period of account.

(4) In subsections (2) and (3) “excluded derivative contract amount” means an amount which would, on the relevant assumptions, be excluded from section 597(1) of CTA 2009 (amounts recognised in determining a company's profit or loss) as a result of a relevant provision of the Disregard Regulations.

(5) Subsection (6) applies where, on the relevant assumptions, one or more amounts (“replacement derivative contract amounts”) would be brought into account by members of the group for the purposes of corporation tax in relevant accounting periods as a result of regulation 9 or 10 of the Disregard Regulations.

(6) The financial statements are treated for the purposes of this Part (apart from this section) as if the replacement derivative contract amounts were recognised in the group's financial statements for the relevant period of account.

(7) Subsection (9) applies if an accounting period in which a replacement derivative contract amount would, on the relevant assumptions, be brought into account for the purposes of corporation tax contains one or more disregarded periods.

(8) A “disregarded period” is any period falling within the accounting period—

(a) which does not fall within the relevant period of account, or

(b) throughout which the company is not a member of the group.

(9) Where this subsection applies, the replacement derivative contract amount mentioned in subsection (7) is reduced by such amount as is referable, on a just and reasonable basis, to the disregarded period or periods mentioned in that subsection.

(10) An amount may be reduced to nil under subsection (9).

421 Derivative contracts subject to fair value accounting: interpretation U.K.

(1) In section 420 “the relevant assumptions” means the following assumptions—

(a) that all members of the group are within the charge to corporation tax;

(b) that elections under regulation 6A of the Disregard Regulations have effect in relation to each derivative contract of each member of the group;

(c) that paragraph (5) of regulation 7 of the Disregard Regulations is of no effect;

(d) that where—

(i) a member of the group (“member A”) holds a derivative contract,

(ii) the group has a hedging relationship between that derivative contract (on the one hand), and an asset, liability, receipt or expense (on the other), and

(iii) the asset, liability, receipt or expense is held, or is expected to be received or incurred, by a member of the group other than member A,

the asset, liability, receipt or expense is held, or is expected to be received or incurred, by member A;

(e) that the financial statements of members of the group deal with derivative contracts and hedged items in the same way as they are dealt with in the group's financial statements.

(2) For the purposes of subsection (1)(d) the group has a “hedging relationship” between a derivative contract (on the one hand) and an asset, liability, receipt or expense (on the other) if, were those things held, received or incurred by a single company, the company would have a hedging relationship between them.

(3) Regulation 2(5) of the Disregard Regulations (hedging relationships of a company) applies for the purposes of this section.

(4) For the purposes of section 420 and this section—

(a) “the Disregard Regulations” means the Loan Relationship and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004 (S.I. 2004/3256);

(b) the following are “relevant provisions” of the Disregard Regulations—

(i) regulation 7 (fair value profits or losses arising from derivative contracts which are currency contracts);

(ii) regulation 8 (profits or losses arising from derivative contracts which are commodity contracts or debt contracts);

(iii) regulation 9 (profits or losses arising from derivative contracts which are interest rate contracts).]