The Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) (Amendment No. 2) Regulations 2007

Explanatory Note

(This note is not part of the Regulations)

These Regulations amend the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004 (S.I. 2004/3256, as amended by S.I. 2005/2012, 2005/3374, 2006/3236 and 2007/948: “the Principal Regulations”) which allow certain profits and losses from loan relationships and derivative contracts to be left out of account, to be brought into account in a different way or to be brought into account at a later date.

Regulation 1 provides for citation, commencement and effect.

Regulation 2 amends the Principal Regulations as follows.

Paragraphs (2) to (4) make amendments to regulation 2 (interpretation), regulation 3 (exchange gains or losses arising from liabilities or assets hedging shares etc) and regulation 4 (exchange gains or losses arising from derivative contracts hedging shares etc) which are consequent to the new regulations 4A, 4B and 4C inserted by paragraph (5).

New regulation 4A (relevant value) makes provision for a company to elect to match a liability or derivative contract with the value of net assets underlying a shareholding, in other cases the value to be matched is the value shown in the accounts of the company.

New regulation 4B (relevant time) makes provision for the relevant time to determine the value for matching purposes. Where a company has elected to match the underlying net asset value, the relevant time is the start of a review period. Where the value is determined by the accounts value, the relevant time is the time when the liability or contract is entered into or, if later, when the asset is acquired.

New regulation 4C (review period) defines the review period.

A full regulatory impact assessment has not been produced for this instrument as no impact on the private or voluntary sectors is foreseen.