C1C2Part 7Derivative contracts

Annotations:
Modifications etc. (not altering text)
C1

Pt. 7 modified (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 601, 1184(1) (with Sch. 2)

C2

Pt. 7 modified (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 88(1)(2)(7) (with s. 147, Sch. 17)

Chapter 8Further provision about chargeable gains and derivative contracts

Treatment of net gains and losses on disposal of certain embedded derivatives

672Treatment of net gains and losses on disposal of certain embedded derivatives

1

This section applies if—

a

a derivative contract is one to which section 648 (creditor relationships: embedded derivatives which are exactly tracking contracts for differences) applies for an accounting period, and

b

the asset representing the creditor relationship mentioned in section 648(2) is disposed of in the accounting period.

2

For the purpose of calculating any chargeable gain accruing to the company on the disposal, the sums allowable as a deduction under section 38(1)(a) of TCGA 1992 (acquisition costs) are—

a

if the sum of G and CV exceeds L, increased by the amount of that excess,

b

if L exceeds the sum of G and CV, reduced by the amount of that excess.

3

If the amount of the excess in subsection (2)(b) is greater than the amount of expenditure allowable under section 38(1)(a) of TCGA 1992, the amount of the excess which cannot be deducted from the expenditure so allowable is, for the purpose mentioned in subsection (2), added to the amount of the consideration for the disposal.

4

Sections 37 and 39 of TCGA 1992 (consideration chargeable to tax on income and exclusion of expenditure by reference to tax on income) do not apply in relation to the disposal.

5

For the meaning of G, L and CV, see section 673.

673Meaning of G, L and CV in section 672

1

This section applies for the purposes of section 672.

2

G is the sum of the amounts of any chargeable gains treated as accruing to the company under section 641(3)(a) (derivative contracts to be taxed on a chargeable gains basis) in respect of the derivative contract in each relevant accounting period.

3

L is the sum of the amounts of any allowable losses treated as accruing to the company under section 641(3)(b) in respect of the derivative contract in each relevant accounting period.

4

CV is the amount by which the carrying value of the host contract at the date of the disposal exceeds the carrying value of that contract at the date on which the company became a party to the creditor relationship mentioned in section 648(2).

5

In this section—

  • “the host contract” means the loan relationship to which the company is treated as a party under section 415(2) (loan relationships with embedded derivatives) because of the creditor relationship mentioned in section 648(2), and

  • “relevant accounting period” means—

    1. a

      the accounting period in which the disposal is made, or

    2. b

      any previous accounting period.