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Finance Act 2016

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11(1)Section 694 (derivative contracts: exchange gains and losses) is amended as follows.E+W+S+N.I.

(2)After subsection (3) insert—

(3A)If the contract is to any extent matched, subsection (3) applies to leave out of account only the amount of the exchange gains or losses arising to the company in relation to the contract to the extent that the contract is unmatched (an amount which may be nil).

(3)After subsection (7) insert—

(7A)Subsections (5) to (7) apply only to the extent that the contract is unmatched.

(4)After subsection (10) insert—

(11)For the purposes of this section a derivative contract of a company is matched if and to the extent that—

(a)it is in a matching relationship with another derivative contract or loan relationship of the company, or

(b)exchange gains or losses arising in relation to the derivative contract are excluded from being brought into account under regulations under section 606(4)(b),

and “unmatched” is to be construed accordingly.

(12)A derivative contract is in a matching relationship with another derivative contract or loan relationship if one is intended by the company to act to eliminate or substantially reduce the economic risk of the other.

(13)In this section “economic risk” means a risk which can be attributed to fluctuations in exchange rates between currencies over a period of time.

(14)In this section “loan relationship” has the same meaning as in Part 5 (see section 302).

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