Corporation Tax Act 2009

Part 7U.K.Derivative contracts

Chapter 1U.K.Introduction

IntroductionU.K.

570Overview of PartU.K.

(1)This Part is about how profits and losses arising to a company from its derivative contracts are brought into account for corporation tax purposes.

(2)For the meaning of “derivative contract”, see section 576 and the remainder of Chapter 2.

(3)For how such profits and losses are calculated and brought into account, see—

(a)section 572 (profits and losses to be calculated using credits and debits given by this Part),

(b)section 573 (trading credits and debits to be brought into account under Part 3),

(c)section 574 (non-trading credits and debits to be brought into account under Part 5), and

(d)Chapter 7 (chargeable gains arising in relation to derivative contracts).

(4)For the priority of this Part for corporation tax purposes, see Chapter 12.

(5)This Part also contains the following Chapters (which mainly relate to the amounts to be brought into account in respect of derivative contracts)—

(a)Chapter 3 (credits and debits to be brought into account: general),

(b)Chapter 4 (further provision about credits and debits to be brought into account),

(c)Chapter 5 (continuity of treatment on transfers within groups),

(d)Chapter 6 (special kinds of company),

(e)Chapter 8 (further provision about chargeable gains and derivative contracts),

(f)Chapter 9 (European cross-border transfers of business),

(g)Chapter 10 (European cross-border mergers),

(h)Chapter 11 (tax avoidance), and

(i)Chapter 13 (general and supplementary provisions).

(6)See also section 980 of ITA 2007 (payments under derivative contracts excepted from duty to deduct income tax).

How profits and losses from derivative contracts are dealt withU.K.

571General rule: profits chargeable as incomeU.K.

(1)The general rule for corporation tax purposes is that all profits arising to a company from its derivative contracts are chargeable to corporation tax as income in accordance with this Part.

(2)But see Chapter 7, which makes provision for cases in which profits arising to a company from its derivative contracts are chargeable to corporation tax as chargeable gains.

572Profits and losses to be calculated using credits and debits given by this PartU.K.

(1)Profits and losses arising to a company from its derivative contracts are to be calculated using the credits and debits given by this Part.

(2)For exceptions to this section, see sections 652 to 658 (issuers of securities with embedded derivatives: deemed options and contracts for differences).

573Trading credits and debits to be brought into account under Part 3U.K.

(1)This section applies so far as in an accounting period a company is a party to a derivative contract for the purposes of a trade it carries on.

(2)The credits in respect of the contract for the period are treated as receipts of the trade which are to be brought into account in calculating the profits of the trade for that period.

(3)The debits in respect of the contract for the period are treated as expenses of the trade which are deductible in calculating those profits.

(4)So far as subsection (3) provides for any amount to be deductible, it applies despite anything in—

(a)section 53 (capital expenditure),

(b)section 54 (expenses not wholly and exclusively for trade and unconnected losses), or

(c)section 59 (patent royalties).

(5)For cases in which this section does not apply, see—

(a)section 616 (disapplication of fair value accounting for certain embedded derivatives), and

(b)Chapter 7 (chargeable gains arising in relation to derivative contracts).

574Non-trading credits and debits to be brought into account under Part 5U.K.

(1)This section applies if, for an accounting period, there are credits or debits in respect of the derivative contracts of a company which are not brought into account in accordance with section 573.

(2)Those credits or debits—

(a)are to be treated as non-trading credits or non-trading debits (within the meaning of Part 5 (loan relationships)) for the period, and

(b)are accordingly to be brought into account in determining whether the company has non-trading profits or a non-trading deficit from its loan relationships for the period.

[F1(2A)In the case of a non-UK resident company, subsection (2) needs to be read with section 5(3), (3A)(b) and (3B)(b) (territorial scope of charge to corporation tax).]

(3)For cases in which this section does not apply, see—

(a)section 616 (disapplication of fair value accounting for certain embedded derivatives), and

(b)Chapter 7 (chargeable gains arising in relation to derivative contracts).

Chapter 2U.K.Contracts to which this Part applies

IntroductionU.K.

575Overview of ChapterU.K.

(1)This Chapter makes provision about the contracts to which this Part applies.

(2)In particular, it—

(a)contains a definition of “derivative contract” (see section 576),

(b)contains other definitions (such as “relevant contract”, “option”, “future” and “contract for differences”) which are used in determining whether a contract is a derivative contract (see sections 577 to 583),

(c)makes provision about cases in which companies are treated as parties to relevant contracts (see sections 584 to 586),

(d)provides for certain contracts and transactions to be treated as derivative contracts (see sections 587 and 588), and

(e)provides for certain contracts to be treated as not being derivative contracts because of their underlying subject matter (see sections 589 to 593).

Meaning of “derivative contract” and other basic definitionsU.K.

576“Derivative contract”U.K.

(1)For the purposes of this Part, a contract of a company is a derivative contract of the company for an accounting period if it—

(a)is a relevant contract (see sections 577 and 578),

(b)meets any of the accounting conditions for the accounting period (see section 579), and

(c)is not prevented from being a derivative contract by section 589 (contracts excluded because of underlying subject matter: general) or any other provision of the Corporation Tax Acts.

(2)See also sections 587 and 588 (other contracts etc treated as derivative contracts).

(3)But note section 701 which includes power to amend the provisions of this Chapter relating to the meaning of “derivative contract”.

577“Relevant contract”U.K.

(1)In this Part “relevant contract” means—

(a)an option,

(b)a future, or

(c)a contract for differences.

(2)For the meaning of “option”, “future” and “contract for differences”, see sections 580, 581 and 582 respectively.

578Relevant contracts of a company and being party to such contractsU.K.

(1)For the purposes of this Part, references to a relevant contract of a company are references to a relevant contract entered into or acquired by the company (but see subsection (3)).

(2)For the purposes of this Part, a relevant contract is acquired by a company if the company becomes—

(a)entitled to the rights under the relevant contract, and

(b)subject to the liabilities under it.

(3)For particular cases where companies are treated as parties to relevant contracts, see—

(a)section 584 (hybrid derivatives with embedded derivatives),

(b)section 585 (loan relationships with embedded derivatives), and

(c)section 586 (other contracts with embedded derivatives).

(4)References in this Part to a company being a party to a relevant contract are to be read in accordance with this section.

579The accounting conditionsU.K.

(1)The accounting conditions for any accounting period are that—

(a)the relevant contract is treated for accounting purposes as a derivative,

(b)the relevant contract—

(i)is not so treated just because of not meeting the requirement in paragraph 9(b) of Financial Reporting Standard 26 issued in December 2004 by the Accounting Standards Board (requirement for no initial net investment or smaller initial net investment than comparable types of contract), but

(ii)is or forms part of a financial asset or liability for accounting purposes, or

(c)the relevant contract is not within paragraph (a) or (b), but is within subsection (2).

(2)A relevant contract is within this subsection if—

(a)its underlying subject matter is commodities, or

(b)it is a contract for differences whose underlying subject matter is—

(i)land,

(ii)tangible movable property, other than commodities which are tangible assets,

(iii)intangible fixed assets,

(iv)weather conditions, or

(v)creditworthiness.

(3)For the purposes of subsection (1)(a), a relevant contract of a company is treated for accounting purposes as a derivative for an accounting period if for that period—

(a)it is so treated for the purposes of the relevant accounting standard used by the company for that period, or

(b)it would be so treated if the company used the relevant accounting standard for that period in respect of the contract.

(4)For the purposes of subsection (1)(b), a relevant contract of a company is or forms part of a financial asset or liability for accounting purposes for an accounting period if for that period—

(a)it is or does so for the purposes of the relevant accounting standard used by the company for that period, or

(b)it would be or would do so if the company used the relevant accounting standard for that period in respect of the contract.

(5)In this section “relevant accounting standard” means—

(a)for any accounting period in relation to which it is required or permitted to be used, Financial Reporting Standard 25 issued in December 2004 by the Accounting Standards Board, as from time to time modified, amended or revised, or

(b)for any accounting period in relation to which it is required or permitted to be used, any subsequent accounting standard dealing with transactions which are derivatives, as from time to time modified, amended or revised.

(6)For the meaning of “underlying subject matter”, see section 583.

580“Option”U.K.

(1)In this Part “option” includes a warrant.

(2)References in this Part to an option do not include a contract whose terms—

(a)provide—

(i)that, after setting off their obligations to each other under the contract, a cash payment is to be made by one party to the other in respect of the excess, if any, or

(ii)that each party is liable to make to the other party a cash payment in respect of all that party's obligations to the other under the contract, and

(b)do not provide for the delivery of any property.

(3)Subsection (2) does not prevent an option whose underlying subject matter is currency from being an option.

(4)But see—

(a)section 652 (introduction to sections 653 to 655),

(b)section 665 (issuers of securities with embedded derivatives: equity instruments), and

(c)section 695 (transfers of value to connected companies),

in which “option” is to be construed as if subsections (2) and (3) were omitted.

581“Future”U.K.

(1)In this Part “future” means a contract for the sale of property under which delivery is to be made—

(a)at a future date agreed when the contract is made, and

(b)at a price so agreed,

but this is subject to subsection (3).

(2)For the purposes of subsection (1)(b), a price is agreed when the contract is made even if—

(a)the price is left to be determined by reference to the price at which a contract is to be entered into on a market or exchange or could be entered into at a time and place specified in the contract, or

(b)in a case where the contract is expressed to be by reference to a standard lot and quality, provision is made for a variation in the price to take account of any variation in quantity or quality on delivery.

(3)References in this Part to a future do not include a contract whose terms—

(a)provide—

(i)that, after setting off their obligations to each other under the contract, a cash payment is to be made by one party to the other in respect of the excess, if any, or

(ii)that each party is liable to make to the other party a cash payment in respect of all that party's obligations to the other under the contract, and

(b)do not provide for the delivery of any property.

(4)Subsection (3) does not prevent a future whose underlying subject matter is currency from being a future.

582“Contract for differences”U.K.

(1)In this Part “contract for differences” means a contract the purpose or pretended purpose of which is to make a profit or avoid a loss by reference to fluctuations in—

(a)the value or price of property described in the contract, or

(b)an index or other factor designated in the contract.

[F2and includes a contract which falls within section 6(2) of, or paragraph 1(1) of Schedule 2 to, the Energy Act 2013.]

(2)But none of the following is a contract for differences—

(a)an option,

(b)a future,

(c)a contract of insurance,

(d)a capital redemption policy,

(e)a contract of indemnity,

(f)a guarantee,

(g)a warranty, or

(h)a loan relationship.

(3)For the purposes of subsection (1)(b), an index or factor may be determined by reference to any matter.

583“Underlying subject matter”U.K.

(1)In this Part references to the underlying subject matter of a relevant contract are to be read as follows.

(2)The underlying subject matter of an option is—

(a)the property which would fall to be delivered if the option were exercised, or

(b)if the property which would so fall is a derivative contract, the underlying subject matter of that contract.

(3)The underlying subject matter of a future is—

(a)the property which, if the future were to run to delivery, would fall to be delivered at the date and price agreed when the contract is made, or

(b)if the property which would so fall is a derivative contract, the underlying subject matter of that contract.

(4)The underlying subject matter of a contract for differences is—

(a)if the contract for differences relates to fluctuations in the value or price of property described in the contract, the property so described, or

(b)if an index or factor is designated in the contract for differences, the matter by reference to which the index or factor is determined.

(5)The things which may be the subject matter of a contract for differences include—

(a)interest rates,

(b)weather conditions, and

(c)creditworthiness.

(6)Interest rates are not the underlying subject matter of a relevant contract if—

(a)under the terms of that contract—

(i)the date on which a party to that contract becomes subject to a duty to make a payment is a variable date, and

(ii)the amount of that payment varies according to the date of payment, and

(b)those terms refer to an interest rate only for the purpose of establishing that amount.

(7)The underlying subject matter of a relevant contract is not treated as being—

(a)land,

(b)shares in a company, or

(c)rights of a unit holder under a unit trust scheme,

just because its underlying subject matter includes income from that kind of property.

Cases where companies treated as parties to relevant contractsU.K.

584Hybrid derivatives with embedded derivativesU.K.

(1)This section applies if—

(a)a company is a party to a relevant contract which meets the condition in section 579(1)(b) or (c) (contracts not treated for accounting purposes as derivatives),

(b)in accordance with generally accepted accounting practice, the company treats the rights and liabilities under the contract as divided between—

(i)rights and liabilities under one or more derivatives (“embedded derivatives”), and

(ii)the remaining rights and liabilities, and

(c)a contract consisting of only those remaining rights and liabilities would be a relevant contract.

(2)The company is treated for the purposes of this Part—

(a)as a party to a relevant contract whose rights and liabilities consist only of those of the embedded derivative, or (if there is more than one embedded derivative) as a party to relevant contracts each of whose rights and liabilities consist only of those of one of the embedded derivatives, and

(b)as a party to a relevant contract whose rights and liabilities are those within subsection (1)(b)(ii).

(3)Each relevant contract to which a company is treated as a party under subsection (2) is treated for the purposes of this Part as an option, a future or a contract for differences depending on what the character of a separate contract containing the rights and liabilities of the deemed relevant contract would be.

(4)In this Part “hybrid derivative” means a relevant contract within subsection (1)(a).

(5)See also—

(a)section 592 (embedded derivatives treated as meeting condition in section 591 etc), and

(b)section 616 (disapplication of fair value accounting for certain embedded derivatives).

585Loan relationships with embedded derivativesU.K.

(1)This section applies if in accordance with generally accepted accounting practice a company treats the rights and liabilities under a loan relationship to which it is a party as divided between—

(a)rights and liabilities under a loan relationship, and

(b)rights and liabilities under one or more derivative financial instruments or equity instruments (“embedded derivatives”).

(2)The company is treated for the purposes of this Part—

(a)as a party to a relevant contract whose rights and liabilities consist only of those of the embedded derivative, or

(b)if there is more than one embedded derivative, as a party to relevant contracts each of whose rights and liabilities consist only of those of one of the embedded derivatives.

(3)Each relevant contract to which a company is treated as a party under subsection (2) is treated for the purposes of this Part as an option, a future or a contract for differences depending on what the character of a separate contract containing the rights and liabilities of the embedded derivative would be.

(4)For the corresponding treatment of the rights and liabilities within subsection (1)(a), see section 415 (loan relationships with embedded derivatives).

(5)See also—

(a)section 416 (election for section 415 and this section to apply), and

(b)section 635 (some creditor relationships treated as ones in relation to which section 415 and this section have effect).

586Other contracts with embedded derivativesU.K.

(1)This section applies if a company—

(a)is a party to a contract which is neither a hybrid derivative nor a loan relationship, and

(b)in accordance with generally accepted accounting practice, treats the rights and liabilities under the contract as divided between—

(i)rights and liabilities under one or more derivatives (“embedded derivatives”), and

(ii)the remaining rights and liabilities.

(2)The company is treated for the purposes of this Part—

(a)as a party to a relevant contract whose rights and liabilities consist only of those of the embedded derivative, or

(b)if there is more than one embedded derivative, as a party to relevant contracts each of whose rights and liabilities consist only of those of one of the embedded derivatives.

(3)Each relevant contract to which a company is treated as a party under subsection (2) is treated for the purposes of this Part as an option, a future or a contract for differences depending on what the character of a separate contract containing the rights and liabilities of the embedded derivative would be.

(4)See also section 616 (disapplication of fair value accounting for certain embedded derivatives).

Other contracts etc treated as derivative contractsU.K.

587Contract relating to holding in OEIC, unit trust or offshore fundU.K.

(1)This section applies in relation to a relevant contract to which a company is a party in an accounting period if—

(a)it is not a derivative contract for the purposes of this Part but for this section, and

(b)its underlying subject matter consists wholly or partly of a relevant holding in that period.

(2)This Part has effect—

(a)for that accounting period, and

(b)for any succeeding accounting period in which the relevant contract is a relevant contract of the company,

as if the relevant contract were a derivative contract.

(3)For the purposes of this section, the underlying subject matter of a contract consists wholly or partly of a relevant holding in an accounting period if—

(a)at any time in that period it consists wholly or partly of—

(i)any shares in an open-ended investment company,

(ii)any rights under a unit trust scheme, or

(iii)[F3an interest in an offshore fund (within the meaning of section 355 of TIOPA 2010)], and

(b)there is a time in the period when that company, scheme or fund fails to meet the qualifying investments test.

(4)In subsection (3) “meeting the qualifying investments test” has the same meaning as in section 493 (the qualifying investments test).

(5)See section 18(2)(c)(ii) of F(No.2)A 2005 (section 17(3): specific powers) for the power to modify the meaning of “relevant holding” for the purposes of this section by regulations under section 17(3) of that Act (regulations about authorised unit trusts and OEICs).

(6)For the way in which credits and debits are to be brought into account where this section applies, see section 601 (application of fair value accounting).

(7)See also—

(a)section 602 (contract becoming one relating to holding in OEIC, unit trust or offshore fund), and

(b)section 660 (company ceasing to be party to contract relating to holding in OEIC, unit trust or offshore fund).

588Associated transaction treated as derivative contractU.K.

(1)This section is to be read as if it were in Chapter 7 (shares with guaranteed returns etc) of Part 6 (relationships treated as loan relationships etc).

(2)See, in particular—

• section 526(2) (meaning of “non-qualifying share”), and

• section 532 (meaning of “associated transaction” and “the associated transactions condition”).

(3)Subsection (4) applies in a case which falls within section 523(1)(b)(ii) (loan relationships: non-qualifying shares) because the share mentioned in section 523(1)(a) is a non-qualifying share as a result of the associated transactions condition being met.

(4)An associated transaction is treated for the purposes of this Part as a derivative contract or a transaction in respect of a derivative contract if it is not in fact such a contract or transaction.

(5)For the way in which credits and debits are to be brought into account where subsection (4) applies, see section 603 (application of fair value accounting).

Exclusions from derivative contractsU.K.

589Contracts excluded because of underlying subject matter: generalU.K.

(1)A relevant contract is not a derivative contract for the purposes of this Part if its underlying subject matter—

(a)consists wholly of excluded property (see subsections (2) to (5)), or

(b)is treated as consisting wholly of such property.

(2)“Excluded property” means—

(a)intangible fixed assets,

(b)shares in a company other than shares within subsection (3), or

(c)rights of a unit holder under a unit trust scheme other than a scheme in relation to which section 490 (holdings in OEICs, unit trusts and offshore funds treated as creditor relationship rights) has effect.

(3)The shares within this subsection are—

(a)shares to which section 524 or 526 (shares subject to outstanding third party obligations and shares which are non-qualifying shares) applies, and

(b)shares in an open-ended investment company in relation to which section 490 has effect.

(4)Subsection (2)(a) applies only in relation to a relevant contract which is an option or future.

(5)Subsection (2)(b) and (c) apply only in relation to a relevant contract which—

(a)meets any of conditions A to E in section 591, and

(b)is not designed to produce a return which equates in substance to the return on an investment of money at a commercial rate of interest.

(6)Section 590 applies for determining whether the underlying subject matter of a relevant contract is to be treated as consisting wholly of excluded property.

590Disregard of subordinate or small value underlying subject matterU.K.

(1)This section applies in relation to a relevant contract if its underlying subject matter consists only of—

(a)excluded property, and

(b)other underlying subject matter which is—

(i)subordinate in relation to any of the excluded property, or

(ii)of small value in comparison with the value of the underlying subject matter as a whole.

(2)The underlying subject matter of the contract is treated for the purposes of this Part as if it consisted wholly of excluded property.

(3)For the purposes of this section, whether part of the underlying subject matter of a relevant contract of a company is subordinate or of small value is to be determined by reference to the time when the company enters into or acquires the contract.

(4)In this section “excluded property” has the same meaning as in section 589.

591Conditions A to E mentioned in section 589(5)U.K.

(1)The following are the conditions mentioned in section 589(5).

(2)Condition A is that the relevant contract—

(a)is a plain vanilla contract entered into or acquired by a company carrying on [F4long-term business],

(b)is an approved derivative for the purposes of Rule 3.2.5 of the [F5Prudential Sourcebook for Insurers] [F6(within the meaning given by section 139(4) of FA 2012)], and

(c)does not meet the condition in section 579(1)(b) (contract which is or forms part of a financial asset or liability for accounting purposes).

(3)Condition B is that—

(a)the relevant contract is entered into or acquired by a company otherwise than for the purposes of a trade carried on by it,

(b)there is a hedging relationship between the contract and—

(i)an asset of the company which consists of shares or rights of a unit holder under a unit trust scheme, or

(ii)any share capital of the company or any liability related to share capital of the company, and

(c)the relevant contract is not one to which the company is treated as a party under section 585(2) (loan relationships with embedded derivatives).

(4)Condition C is that—

(a)the relevant contract is entered into or acquired by a company otherwise than for the purposes of a trade carried on by it, and

(b)the relevant contract is an option which is listed on a recognised stock exchange to subscribe for shares in a company.

(5)Condition D is that—

(a)the relevant contract is entered into or acquired by a company otherwise than in the course of activities forming an integral part of a trade carried on by it,

(b)the relevant contract is—

(i)an option to acquire shares in a company, or

(ii)a future requiring delivery of shares in a company,

(c)the relevant contract is not one to which the company is treated as a party under section 585(2), and

(d)the shares to be acquired or delivered—

(i)constitute a substantial shareholding within the meaning of paragraph 8 of Schedule 7AC to TCGA 1992 (meaning of “substantial shareholding”), or

(ii)would do so if acquired or delivered.

(6)Condition E is that—

(a)the company which is a party to the relevant contract has a hedging relationship between—

(i)the relevant contract, and

(ii)an asset or liability representing a loan relationship which is treated as mentioned in section 585(1) (loan relationships with embedded derivatives), and

(b)each relevant contract to which the company is treated as a party under section 585(2) in the case of that loan relationship is a derivative contract to which any of the provisions in subsection (7) applies.

(7)The provisions mentioned in subsection (6)(b) are—

(a)section 645 (creditor relationships: embedded derivatives which are options),

(b)section 648 (creditor relationships: embedded derivatives which are exactly tracking contracts for differences),

(c)sections 653 to 655 (issuers of securities with embedded derivatives: deemed options), and

(d)section 658 (issuers of securities with embedded derivatives: deemed contracts for differences).

(8)For the cases in which sections 653 to 655 and section 658 apply, see sections 652 and 656 respectively.

592Embedded derivatives treated as meeting condition in section 591 etcU.K.

(1)This section applies if for an accounting period—

(a)a company is a party to a hybrid derivative which meets the condition in section 579(1)(b) (contract which is or forms part of a financial asset or liability for accounting purposes),

(b)the embedded derivative is a relevant contract which meets the condition in section 579(1)(a) (contract treated for accounting purposes as derivative),

(c)the underlying subject matter of that contract consists, or is treated as consisting, wholly of—

(i)shares in a company, or

(ii)rights of a unit holder under a unit trust scheme, and

(d)the host contract is or forms part of a financial asset or liability for accounting purposes.

(2)The embedded derivative is treated—

(a)for the purposes of section 589 (contracts excluded because of underlying subject matter: general) as meeting one of the conditions in section 591, and

(b)as a chargeable asset.

(3)The host contract is treated for the purposes of the Corporation Tax Acts as if it were a creditor relationship of the company (see Part 5 (loan relationships)).

(4)Section 590 (disregard of subordinate or small value underlying subject matter) applies for the purpose of determining whether the underlying subject matter is to be treated as consisting wholly of property mentioned in subsection (1)(c) as that section so applies in relation to excluded property.

(5)In this section—

• “the embedded derivative” means the relevant contract to which the company is treated as a party under section 584(2)(a) because of the hybrid derivative mentioned in subsection (1)(a), and

• “the host contract” means the relevant contract to which the company is treated as a party under section 584(2)(b) because of that hybrid derivative.

593Contracts where part of underlying subject matter is excluded propertyU.K.

(1)This section applies to a relevant contract of a company—

(a)which is an option or future,

(b)which meets any of the accounting conditions in section 579(1), and

(c)whose underlying subject matter consists of—

(i)excluded property, and

(ii)other underlying subject matter.

(2)A relevant contract to which this section applies is treated for the purposes of the Corporation Tax Acts as if it were the following two contracts—

(a)a relevant contract whose underlying subject matter consists of the excluded property, and

(b)a relevant contract whose underlying subject matter consists of the other underlying subject matter.

(3)For the purposes of giving effect to subsection (2), all such apportionments as are just and reasonable are to be made.

(4)This section does not apply to a relevant contract if it is determined in accordance with section 590 (disregard of subordinate or small value underlying subject matter) that the underlying subject matter of the relevant contract is to be treated as consisting wholly of excluded property.

(5)In this section “excluded property” has the same meaning as in section 589 (contracts excluded because of underlying subject matter: general).

Chapter 3U.K.Credits and debits to be brought into account: general

IntroductionU.K.

594Overview of ChapterU.K.

(1)This Chapter contains rules of general application about the credits and debits to be brought into account for the purposes of this Part.

(2)In particular, it—

[F7(za)makes provision about the matters in respect of which amounts are to be brought into account (see section 594A),]

(a)sets out the general principles which are to apply in relation to the bringing into account of credits and debits, including the use of generally accepted accounting practice and the taking into account of related transactions (see sections 595 and 596),

(b)makes provision about the interpretation of the expression “amounts recognised in determining a company's profit or loss” (see sections 597 to 599),

(c)makes provision in relation to the application of fair value accounting (see sections 600 to 603),

(d)sets out some general rules which differ from generally accepted accounting practice (see sections 604 and 605),

(e)makes provision about exchange gains and losses (see section 606),

(f)makes provision about pre-contract or abortive expenses (see section 607),

[F8(g)makes provision about cases where amounts are recognised even though companies are not, or have ceased to be, parties to derivative contracts (see section 607A),

(ga)makes provision about companies moving abroad (see sections 609 and 610), and]

(h)makes provision in relation to statutory insolvency arrangements (see section 611).

[F9Matters in respect of which amounts are to be brought into accountU.K.

594AMatters in respect of which amounts are to be brought into accountU.K.

(1)The matters in respect of which amounts are to be brought into account for the purposes of this Part in respect of a company's derivative contracts are—

(a)profits and losses of the company which arise to it from its derivative contracts and related transactions (excluding expenses), and

(b)expenses incurred by the company under or for the purposes of those contracts and transactions.

(2)Expenses are only treated as incurred as mentioned in subsection (1)(b) if they are incurred directly—

(a)in bringing any of the derivative contracts into existence,

(b)in entering into or giving effect to any of the related transactions,

(c)in making payments under any of those contracts or as a result of any of those transactions, or

(d)in taking steps to secure the receipt of payments under any of those contracts or in accordance with any of those transactions.

(3)For the treatment of pre-contract or abortive expenses, see section 607.

(4)In subsection (1) “profits and losses” include profits and losses of a capital nature.

(5)For the meaning of “related transaction”, see section 596.]

General principlesU.K.

595General principles about the bringing into account of credits and debitsU.K.

(1)This Part operates by reference to the accounts of companies and amounts recognised for accounting purposes in those accounts.

(2)The general rule is that the amounts to be brought into account by a company as credits or debits for any period for the purposes of this Part [F10in respect of the matters mentioned in section 594A(1)] are those which are recognised in determining the company's profit or loss for the period in accordance with generally accepted accounting practice F11... .

[F12(2A)Subsections (2B) and (2C) apply if an accounting period of a company does not coincide with one or more of its periods of account.

(2B)The amounts referred to in subsection (2) are to be determined by apportionment in accordance with section 1172 of CTA 2010 (time basis).

(2C)But if it appears that apportionment in accordance with that section would work unreasonably or unjustly for an accounting period, subsection (2) is to be read as referring to amounts that would have been recognised in determining the company's profit or loss for that period in accordance with generally accepted accounting practice if accounts had been drawn up for that period.]

F13(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F13(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F13(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F13(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7)This section is subject to the following provisions of this Part.

F14(8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

596Meaning of “related transaction”U.K.

(1)In this Part “related transaction”, in relation to a derivative contract, means any disposal or acquisition (in whole or in part) of rights or liabilities under the contract.

(2)For this purpose the cases where there is taken to be such a disposal or acquisition include—

(a)those where rights or liabilities under the derivative contract are transferred or extinguished by any sale, gift, surrender or release, and

(b)those where the contract is discharged by performance in accordance with its terms.

Amounts recognised in determining a company's profit or lossU.K.

597Amounts recognised in determining a company's profit or lossU.K.

(1)References in this Part to an amount recognised in determining a company's profit or loss for a period are to an amount [F15that is recognised in the company's accounts for the period as an item of profit or loss].

[F16(1A)The reference in subsection (1) to an amount recognised in the company's accounts for the period as an item of profit or loss includes a reference to an amount that—

(a)was previously recognised as an item of other comprehensive income, and

(b)is transferred to become an item of profit or loss in determining the company's profit or loss for the period.

(1B)In subsections (1) and (1A) “item of profit or loss” and “item of other comprehensive income” each has the meaning that it has for accounting purposes.]

F17(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F17(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

598Regulations about recognised amountsU.K.

(1)The Treasury may by regulations make provision—

(a)excluding amounts of a specified description from section 597(1) (amounts recognised in determining a company's profit or loss),

(b)requiring amounts of a specified description which are not within section 597(1) to be brought into account in determining a company's profit or loss for a period in specified circumstances, and

(c)as to the way in which any such amounts are to be brought into account.

(2)For the purposes of subsection (1)(b), it does not matter whether the amounts are not within section 597(1) because of regulations under subsection (1)(a) or otherwise.

(3)The regulations may (in particular) make provision by reference to the fact that amounts derive from or otherwise relate to amounts brought into account in a specified way in a previous period of account.

(4)The regulations may—

(a)make different provision for different cases, and

(b)make provision subject to an election or to other specified conditions.

(5)The regulations may apply, exclude or modify any of the provisions of this Part in relation to cases for which provision is made by the regulations.

(6)The regulations may apply to periods of account beginning before they are made, but not earlier than the beginning of the calendar year in which they are made.

599Meaning of “amounts recognised for accounting purposes”U.K.

(1)If a company—

(a)draws up accounts which are not GAAP-compliant accounts, or

(b)does not draw up accounts at all,

this Part applies as if GAAP-compliant accounts had been drawn up.

(2)Accordingly, references in this Part to amounts recognised for accounting purposes include references to the amounts which would have been recognised if GAAP-compliant accounts had been drawn up for the period of account in question and any relevant earlier period.

(3)For this purpose a period of account is relevant to a later period if the accounts for the later period rely to any extent on amounts derived from the earlier period.

(4)In this section “GAAP-compliant accounts” means accounts drawn up in accordance with generally accepted accounting practice.

[F18599AAmounts not fully recognised for accounting purposes: introductionU.K.

(1)Section 599B applies for the purpose of determining the credits and debits which a company is to bring into account for a period for the purposes of this Part in the following case.

(2)The case is where—

(a)the company is, or is treated as, a party to a derivative contract in the period, [F19and]

[F20(b)as a result of tax avoidance arrangements to which the company is at any time a party, an amount is (in accordance with generally accepted accounting practice) not fully recognised for the period in respect of the contract.]

F21(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F21(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F21(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F21(5A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F21(5B). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)For the purposes of this section an amount is not fully recognised for a period in respect of a contract of a company F22... if—

(a)no amount in respect of the contract F23... is recognised in determining its profit or loss for the period, or

(b)an amount is so recognised in respect of only part of the contract F23....]

[F24(7)For the purposes of this section arrangements are “tax avoidance arrangements” if the main purpose, or one of the main purposes, of any party to the arrangements, in entering into them, is to obtain a tax advantage.

(8)In subsection (7)—

(a)“arrangements” includes any arrangements, scheme or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions, and

(b)“tax advantage” has the meaning given by section 1139 of CTA 2010.

(9)For the purposes of this section a company is to be treated as a party to a derivative contract even though it has disposed of its rights and liabilities under the contract to another person—

(a)under a repo or stock lending arrangement, or

(b)under a transaction which is treated as not involving any disposal as a result of section 26 of TCGA 1992 (mortgages and charges not to be treated as disposals).]

[F18599BDetermination of credits and debits where amounts not fully recognisedU.K.

(1)In determining the credits and debits which a company is to bring into account for the period referred to in section 599A(1) for the purposes of this Part in respect of the derivative contract mentioned in section 599A(2), the assumption in subsection (2) is to be made.

(2)The assumption is that an amount in respect of the whole of the contract in question is recognised in determining the company's profit or loss for the period.

[F25(2A)But no debits are, as a result of this section, to be brought into account by the company in respect of the derivative contract.]

(3)The credits and debits which are to be brought into account for the purposes of this Part by the company in respect of the contract are to be determined on the basis of fair value accounting.]

[F26(4)If—

(a)the company is, or is treated as, a party to the contract at the beginning of the period referred to in section 599A(1), and

(b)the fair value of the contract at that time is greater than the [F27tax-adjusted carrying value] of that contract at that time,

a credit of an amount equal to the difference is to be brought into account for that period for the purposes of this Part in respect of the contract.]

Application of fair value accountingU.K.

600Contract which is or forms part of financial asset or liabilityU.K.

(1)This section applies to a derivative contract which meets the condition in section 579(1)(b) (contract which is or forms part of a financial asset or liability for accounting purposes).

(2)The amounts to be brought into account in accordance with this Part in respect of the contract are to be determined on the basis of fair value accounting.

601Contract relating to holding in OEIC, unit trust or offshore fundU.K.

(1)This section applies if a company is a party in an accounting period to a relevant contract which is treated as a derivative contract under section 587 (contract relating to holding in OEIC, unit trust or offshore fund).

(2)The credits and debits which are to be brought into account in accordance with this Part in respect of the relevant contract are to be determined on the basis of fair value accounting.

602Contract becoming one relating to holding in OEIC, unit trust or offshore fundU.K.

(1)This section applies if—

(a)a company is a party to a relevant contract in two successive accounting periods,

(b)section 587 (contract relating to holding in OEIC, unit trust or offshore fund) applies in relation to the relevant contract for the second accounting period but not the first accounting period, and

(c)immediately before the beginning of the second accounting period the relevant contract was a chargeable asset.

(2)For the purposes of section 601(2), the opening valuation of the contract as at the beginning of the second accounting period is taken to be equal to the market value of the contract.

(3)In subsection (2) “the market value of the contract” means the amount which would have been the market value of the contract for the purposes of corporation tax on chargeable gains if it had been disposed of immediately before the end of the first accounting period.

(4)For the rules which apply where the company ceases to be a party to the contract, see section 660 (company ceasing to be party to contract relating to holding in OEIC, unit trust or offshore fund).

603Associated transaction treated as derivative contractU.K.

(1)This section is to be read as if it were in Chapter 7 (shares with guaranteed returns etc) of Part 6 (relationships treated as loan relationships etc).

(2)See, in particular, section 532(3) (meaning of “associated transaction”).

(3)Subsection (4) applies if credits and debits are required to be brought into account in accordance with this Part in respect of any associated transaction because of section 588 (which treats such a transaction which is not a derivative contract as if it were).

(4)Those credits and debits are to be determined on the basis of fair value accounting.

Rules differing from generally accepted accounting practiceU.K.

604Credits and debits treated as relating to capital expenditureU.K.

[F28(1)This section applies if—

(a)an amount for an accounting period in respect of a company's derivative contract relates to any of the matters in section 594A(1),

(b)generally accepted accounting practice allows the amount to be treated in the company's accounts as an amount recognised in determining the carrying value of an asset or liability, and

(c)any profit or loss for corporation tax purposes in relation to that asset or liability will not fall to be calculated in accordance with generally accepted accounting practice.

(2)Despite that treatment, the amount must be brought into account as a credit or debit in accordance with this Part, for the accounting period in which it is recognised, in the same way as an amount which is brought into account as a credit or debit in determining the company's profit or loss for that period in accordance with generally accepted accounting practice.

(3)But subsection (2) does not apply to an amount which relates to an intangible fixed asset to which an election under section 730 (writing down at fixed rate: election for fixed-rate basis) applies.]

F29(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F30(5)If an amount is brought into account as mentioned in subsection (2) as a debit, no debit may be brought into account in accordance with this Part in respect of—

(a)the writing down of so much of the value of the asset or liability as is attributable to that debit, or

(b)so much of any amortisation or depreciation representing a writing off of that value as is attributable to that debit.]

[F31604AAmounts recognised in other comprehensive income and not transferred to profit or lossU.K.

(1)This section applies if—

(a)in a period of account a derivative contract of a company ceases in accordance with generally accepted accounting practice to be recognised in the company's accounts,

(b)amounts relating to the matters mentioned in section 594A(1) in respect of that derivative contract have in accordance with generally accepted accounting practice been recognised in the company's accounts as items of other comprehensive income and have not subsequently been transferred to become items of profit or loss, and

(c)condition A or B is met.

(2)Condition A is that, at the time when the derivative contract ceases to be recognised, it is not expected that the amounts mentioned in subsection (1)(b) will in future be transferred to become items of profit or loss.

(3)Condition B is that, at any later time, it is no longer expected that the amounts mentioned in subsection (1)(b) will in future be transferred to become items of profit or loss.

(4)The amounts mentioned in subsection (1)(b)—

(a)must be brought into account for the purposes of this Part as credits or debits for the period of account in which the time mentioned in subsection (2) or (3) falls, in the same way as a credit or debit which is brought into account in determining the company's profit or loss for that period in accordance with generally accepted accounting practice, and

(b)must not be brought into account for a later period of account even if they are subsequently transferred to become items of profit or loss for the later period.

(5)This section applies in a case where part of a derivative contract of a company ceases to be recognised in the company's accounts as it applies in a case where the whole of a derivative contract ceases to be recognised, but as if the reference in subsection (1)(b) to amounts in respect of a derivative contract were a reference to so much of those amounts as are attributable to that part of the derivative contract.

(6)In determining what amounts fall within subsection (1)(b) at any time in an accounting period, it is to be assumed that the accounting policy applied in drawing up the company's accounts for the period was also applied in previous accounting periods.

(7)But if the company's accounts for the period are in accordance with generally accepted accounting practice drawn up on an assumption as to the accounting policy in previous accounting periods which differs from that mentioned in subsection (6), that different assumption applies in determining what amounts fall within subsection (1)(b) at the time in question.

(8)In this section “item of profit or loss” and “item of other comprehensive income” each has the meaning that it has for accounting purposes.]

F32605Credits and debits recognised in equityU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F33Exchange gains and losses]U.K.

606Exchange gains and lossesU.K.

(1)The reference in [F34section 594A(1)] to the profits and losses arising to a company from its derivative contracts includes a reference to exchange gains and losses so arising.

F35(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F35(2A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F36(3)But subsection (1) does not apply to an exchange gain or loss of a company so far as it—

(a)arises as a result of the translation of the assets, liabilities, income and expenses of all or part of the company's business from the functional currency of the business, or that part of the business, into another currency, and

(b)has been recognised as an item of other comprehensive income.

(3A)In subsection (3)—

(a)the reference to the functional currency of a business or part of a business is a reference to the currency of the primary economic environment in which the business or part operates, and

(b)“assets, liabilities, income and expenses” and “item of other comprehensive income” each has the meaning that it has for accounting purposes.

(3B)No amount is to be brought into account for the purposes of this Part in respect of an exchange gain or loss of an investment company (within the meaning of section 17 of CTA 2010) which would not have arisen but for a change in the company's functional currency (within the meaning of section 17(4) of that Act) as between—

(a)the period of account of the company in which the gain or loss arises, and

(b)a period of account of the company ending in the 12 months immediately preceding that period.

(3C)But subsection (3B) does not apply to an exchange gain or loss arising at a time when an election under section 9A of CTA 2010 (designated currency of UK resident investment company) has effect in relation to the company.]

[F37(4)The Treasury may by regulations make provision—

(a)excluding exchange gains or losses of a specified description from being brought into account for the purposes of this Part,

(b)requiring exchange gains or losses of a specified description which would not otherwise be brought into account for the purposes of this Part to be brought into account in specified circumstances,

(c)as to the way in which, including the currency by reference to which, any exchange gains or losses to be brought into account as a result of provision made under paragraph (b) are to be calculated, and

(d)as to the way in which any such exchange gains or losses are to be brought into account.

(4ZA)For the purposes of subsection (4)(b), it does not matter whether the exchange gains or losses would otherwise be excluded from being brought into account by regulations under subsection (4)(a) or otherwise.]

F38(4A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F38(4B). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F38(4C). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F38(4D). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F38(4E). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F38(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)[F39References in subsection (4)] to bringing amounts into account [F40are references] to bringing amounts into account—

(a)for the purposes of this Part as credits or debits arising to a company from its derivative contracts, or

(b)for the purposes of corporation tax on chargeable gains.

(7)The regulations may—

(a)make different provision for different cases, and

(b)make provision subject to an election or to other specified conditions.

(8)For the meaning of references to exchange gains or losses from derivative contracts, see section 705.

F41606AArrangements that have a “one-way exchange effect”U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F41606BMeaning of “relevant exchange gain” and “relevant exchange loss”U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F41606CMeaning of “test day”U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F41606DCounterfactual currency movement assumptionsU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F41606ECounterfactual currency movement assumptions: treatment of optionsU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F41606FMeaning of “option”U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F41606GMeaning of “relevant contingent contract” and “operative condition”U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F41606HOther interpretative provisionsU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F42Miscellaneous]U.K.

607Pre-contract or abortive expensesU.K.

(1)This section applies if—

(a)a company may enter into a derivative contract or related transaction but has not yet done so,

(b)it incurs any expenses for purposes connected—

(i)with entering into it, or

(ii)with giving effect to any obligation which might arise under it, and

(c)had the company entered into the contract or transaction, the expenses would be expenses within [F43section 594A(1)(b)].

(2)The expenses are treated as expenses in relation to which debits may be brought into account in accordance with [F44section 595(2)] to the same extent as if the company had entered into the contract or transaction.

[F45607ZADebits referable to times before UK property business etc carried onU.K.

(1)This section applies if—

(a)a non-UK resident company has debits in respect of a derivative contract to which it is a party for the purposes of its UK property business,

(b)the debits are referable to times (“the pre-rental times”) before (but not more than 7 years before) the date on which it starts to carry on the business, and

(c)the debits are not otherwise brought into account for tax purposes.

(2)If, on the assumption that the company had been carrying on the business at the pre-rental times, the debits—

(a)would have been recognised in determining its profit or loss for a period consisting of or including those times, and

(b)would have been brought into account for the purposes of this Part,

the debits are (so far as they exceed relevant credits) treated for the purposes of this Part as if they were debits for the accounting period in which it started to carry on the business.

(3)For this purpose “relevant credits” means credits of the company in respect of the derivative contract which, on the assumption that the company had been carrying on the business at the pre-rental times—

(a)would have been recognised in determining its profit or loss for a period consisting of or including those times,

(b)would have been brought into account for the purposes of this Part, and

(c)would not otherwise have been brought into account for tax purposes.

(4)This section also applies in relation to a non-UK resident company which is a party to a derivative contract for the purpose of enabling it to generate other UK property income (within the meaning given by section 5(6)).]

[F46607ACompany is not, or has ceased to be, party to derivative contractU.K.

(1)This section applies if—

(a)amounts in respect of a qualifying contract are recognised in a company's accounts for an accounting period (“the current period”) as an item of profit or loss even though during all or part of the period the company is not a party to the qualifying contract,

(b)any of conditions A to D is met, and

(c)in the absence of this section, the credits and debits brought into account by the company for the purposes of this Part for the current period would not include credits or debits representing the whole of those amounts.

(2)In this section “qualifying contract” means—

(a)a derivative contract, or

(b)a contract that would be a derivative contract if references in section 576(1) to a company were references to any person.

(3)Condition A is that—

(a)the company was a party to the qualifying contract,

(b)amounts in respect of the qualifying contract were recognised in the company's accounts as an item of profit or loss when it was a party to the contract, and

(c)any amounts in respect of the contract continue to be recognised in those accounts as an item of profit or loss.

(4)Condition B is that the amounts recognised as mentioned in subsection (1)(a) are recognised as a result of a transaction which has the effect of transferring to the company all or part of the risk or reward relating to the qualifying contract without a corresponding transfer of rights or obligations under the contract.

(5)Condition C is that the amounts recognised as mentioned in subsection (1)(a) are recognised as a result of a related transaction in relation to a qualifying contract to which the company was, but has ceased to be, a party.

(6)Condition D is that—

(a)the amounts recognised as mentioned in subsection (1)(a) are recognised because the company may enter into a qualifying contract or related transaction but has not yet done so, and

(b)the amounts are not expenses to which section 607 applies.

(7)The company must bring credits and debits into account for the purposes of this Part for the accounting period as if the company were a party to the qualifying contract for the whole of the accounting period.

(8)The amounts that must be brought into account are those amounts in respect of the qualifying contract that are recognised in the company's accounts for the accounting period as an item of profit or loss (but subject to the provisions of this Part).

(9)This section is subject to sections 607B and 607C.

(10)In this section—

• “item of profit or loss” has the meaning it has for accounting purposes;

• “recognised” means recognised in accordance with generally accepted accounting practice;

• “related transaction”, in relation to a qualifying contract, is to be read as if the references in section 596(1) and (2) to a derivative contract were to a qualifying contract.

607BExclusion of debit where relief allowed to anotherU.K.

A company is not to bring into account as a debit for the purposes of this Part as a result of section 607A any amount which—

(a)is brought into account as a debit for those purposes by another company,

(b)is brought into account so as to reduce the assumed taxable total profits of another company for the purposes of Part 9A of TIOPA 2010 (controlled foreign companies), or

(c)is allowable as a deduction by a person for the purposes of income tax.

607CAvoidance of double chargeU.K.

(1)This section applies if at any time a company (“the relevant company”) is required by section 607A to bring into account as a credit for the purposes of this Part an amount—

(a)which is brought into account as a credit for those purposes by another company,

(b)which is brought into account in determining the assumed taxable total profits of another company for the purposes of Part 9A of TIOPA 2010 (controlled foreign companies), or

(c)on which a person is charged to income tax.

(2)In order to avoid a double charge to tax in respect of the amount, the relevant company may make a claim for one or more consequential adjustments to be made in respect of the amount brought into account as a credit.

(3)On a claim under this section an officer of Revenue and Customs must make such of the consequential adjustments claimed (if any) as are just and reasonable.

(4)Consequential adjustments may be made—

(a)in respect of any period,

(b)by way of an assessment, the modification of an assessment, the amendment of a claim, or otherwise, and

(c)despite any time limit imposed by or under any enactment.]

F47608Company ceasing to be party to derivative contractU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

609Company ceasing to be UK residentU.K.

(1)If a company ceases to be UK resident, this Part applies as if—

(a)immediately before so ceasing the company had assigned the rights and liabilities under its derivative contracts for consideration of an amount equal to their fair value at that time, and

(b)it had immediately reacquired them for consideration of the same amount.

(2)Subsection (1) does not apply in relation to a derivative contract so far as immediately after the company ceases to be UK resident its rights and liabilities under the contract are held or owed[F48—

(a)]for the purposes of a permanent establishment of the company in the United Kingdom[F49,

(b)for the purposes of the company's trade of dealing in or developing UK land,

(c)for the purposes of the company's UK property business, or

(d)for the purposes of enabling the company to generate other UK property income (within the meaning given by section 5(6)).]

(3)Subsection (1) does not apply if—

(a)the conditions in section 630(1)(a) and (b) are met in relation to the company (transferee leaving group after replacing transferor as party to derivative contract), and

(b)it ceases to be UK resident at the same time as it ceases to be a member of the relevant group.

(4)In subsection (3) “the relevant group” has the meaning given by section 630(4).

610Non-UK resident company ceasing to hold derivative contract for [F50section 609(2) purposes]U.K.

(1)This section applies if the rights and liabilities under a derivative contract of a company which is not UK resident cease to any extent to be held or owed for [F51section 609(2) purposes] in circumstances not involving a related transaction.

(2)This Part applies as if—

(a)immediately before the rights and liabilities so cease the company had assigned them, so far as so ceasing, for consideration of an amount equal to their fair value at that time, and

(b)the company had immediately reacquired them for consideration of the same amount.

(3)This section does not apply if—

(a)the conditions in section 630(1)(a) and (b) are met in relation to the company (transferee leaving group after replacing transferor as party to derivative contract), and

(b)the rights and liabilities mentioned in subsection (1) cease to be held or owed for [F52section 609(2) purposes] at the same time as the company ceases to be a member of the relevant group.

(4)In subsection (3) “the relevant group” has the meaning given by section 630(4).

[F53(5)A right or liability ceases to be held or owed for section 609(2) purposes if and in so far as—

(a)it ceases to be held or owed for any purposes mentioned in section 609(2), and

(b)on doing so, it does not begin or continue to be held or owed for any of the other purposes so mentioned.]

611Release under statutory insolvency arrangement of liability under derivative contractU.K.

No credit is required to be brought into account by a company in respect of the release of the company's liability to pay an amount under a derivative contract of the company if the release is part of a statutory insolvency arrangement.

Chapter 4U.K.Further provision about credits and debits to be brought into account

IntroductionU.K.

612Overview of ChapterU.K.

(1)This Chapter makes further provision about the credits and debits to be brought into account for the purposes of this Part.

(2)In particular, it—

(a)provides for adjustments on a change of accounting [F54basis] (see sections 613 to 615),

(b)makes provision in relation to certain embedded derivatives (see sections 616 to 618),

(c)makes provision about partnerships involving companies (see sections 619 to 621),

(d)makes provision about contracts ceasing to be derivative contracts (see section 622), and

(e)makes provision in relation to some gilt-edged securities (see section 623).

Adjustments on change of accounting [F55basis]U.K.

613Introduction to sections 614 and 615U.K.

[F56(1)Sections 614 and 615 (adjustments on change of accounting basis) apply if—

(a)a company changes, from one period of account or accounting period to the next, the basis of accounting on which credits and debits relating to its derivative contracts or any of them are calculated for the purposes of this Part,

(b)the change of basis—

(i)is made in order to comply with a provision made by or under this Part requiring those credits and debits to be determined on a particular basis of accounting, or

(ii)results from a change of the company's accounting policy,

(c)the change of basis is not made in order to comply with amending legislation not applicable to the previous period,

(d)the old basis accorded with the law or practice applicable in relation to the period before the change, and

(e)the new basis accords with the law and practice applicable to the period after the change.]

(2)In this section and those sections—

(a)the first of [F57the periods mentioned in subsection (1)] is referred to as “the earlier period”, and

(b)the next is referred to as “the later period”.

F58(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)If an election is made under section 416, this section and sections 614 and 615 apply as if there were a change of accounting policy consisting of the company treating the assets referred to in section 416(1)(c) as mentioned in section 585(1) as from the date the election has effect.

[F59614Change of basis of accounting involving change of valueU.K.

(1)If there is a difference between—

(a)the tax-adjusted carrying value of a derivative contract at the end of the earlier period, and

(b)the tax-adjusted carrying value of that derivative contract at the beginning of the later period,

a credit or debit (as the case may be) of an amount equal to the difference must be brought into account for the purposes of this Part for the later period in the same way as a credit or debit which is brought into account in determining the company's profit or loss for that period in accordance with generally accepted accounting practice.

(2)This section does not apply so far as the credit or debit falls to be brought into account apart from this section.]

615Change of accounting policy after ceasing to be party to derivative contractU.K.

(1)This section applies if—

(a)the company has ceased to be a party to a derivative contract in an accounting period (“the cessation period”),

[F60(b)section 607A (company is not, or has ceased to be, party to derivative contract) applied to the cessation, and]

(c)there is a difference between the amount outstanding in respect of the derivative contract (see subsection (5))—

(i)at the end of the earlier period, and

(ii)at the beginning of the later period.

[F61(2)A credit or debit (as the case may be) of an amount equal to the difference must be brought into account for the purposes of this Part for the later period in the same way as a credit or debit which is brought into account in determining the company's profit or loss for that period in accordance with generally accepted accounting practice.]

(4)[F62Subsection (2) does] not apply so far as the credit or debit falls to be brought into account apart from this section.

[F63(5)In this section “the amount outstanding in respect of the derivative contract” means—

(a)so much of the recognised deferred income or recognised deferred loss from the derivative contract as has not been represented by credits or debits brought into account in accordance with this Part in respect of the contract, and

(b)any amounts relating to the matters mentioned in section 594A(1) in respect of the derivative contract that have in accordance with generally accepted accounting practice been recognised in the company's accounts as items of other comprehensive income and not transferred to become items of profit or loss.]

(6)In subsection (5)—

• “recognised deferred income”, in relation to a derivative contract, means the amount recognised in the company's balance sheet in accordance with generally accepted accounting practice as deferred income in respect of the profits which arose from the contract or a related transaction in the cessation period, and

• “recognised deferred loss”, in relation to a derivative contract, means the amount so recognised as deferred loss in respect of the losses which so arose.

[F64(7)In determining what amounts fall within subsection (5)(b) at the beginning or end of a period, it is to be assumed that the accounting policy applied in drawing up the company's accounts for the period was also applied in previous periods.

(8)But if the company's accounts for the period are in accordance with generally accepted accounting practice drawn up on an assumption as to the accounting policy in previous periods which differs from that mentioned in subsection (7), that different assumption applies in determining what amounts fall within subsection (5)(b) at the beginning or end of the period.]

Certain embedded derivativesU.K.

616Disapplication of fair value accountingU.K.

(1)This section applies if—

(a)a company is treated as a party to a relevant contract under section 584(2)(a) or 586(2) (“the embedded derivative”),

(b)the embedded derivative is a derivative contract which meets the condition in section 579(1)(a) (contract treated for accounting purposes as derivative),

(c)section 592 (embedded derivatives treated as meeting condition in section 591 etc) does not apply in relation to the embedded derivative, and

(d)regulation 9 of the Disregard Regulations (interest rate contracts) does not apply to the embedded derivative.

(2)If this section applies—

(a)sections 573 and 574 (trading credits and debits to be brought into account under Part 3 and non-trading credits and debits to be brought into account under Part 5) do not apply in relation to the embedded derivative, and

(b)subsection (3) or subsections (4) to (6) apply in relation to the original contract, depending on whether that contract is a hybrid derivative or a contract within section 586(1).

(3)If the original contract is a hybrid derivative, profits and losses are to be calculated for the purposes of this Part as if that contract—

(a)were not one where the rights and liabilities are treated for accounting purposes as divided as mentioned in section 584(1) (hybrid derivatives with embedded derivatives), and

(b)were not one in relation to which a fair value basis of accounting is used.

(4)If the original contract is a contract within section 586(1), profits and losses are to be brought into account for the purposes of the Corporation Tax Acts in relation to that contract as if that contract—

(a)were not one where the rights and liabilities are treated for accounting purposes as divided as mentioned in section 586(1) (other contracts with embedded derivatives), and

(b)were not one in relation to which a fair value basis of accounting is used.

(5)Accordingly, this Part does not apply to the original contract (except for the purposes of this section), but section 46 applies to that contract as if fair value accounting were not generally accepted accounting practice in relation to the company.

(6)Subsections (4) and (5) apply despite section 699(1) (priority of this Part for corporation tax purposes).

(7)In this section—

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

• “the original contract” means—

  (a)

  the hybrid derivative as a result of which the company falls to be treated under section 584(2) (hybrid derivatives with embedded derivatives) as a party to the embedded derivative, or

  (b)

  the contract within section 586(1) (other contracts with embedded derivatives) as a result of which the company falls to be treated under section 586(2) as a party to the embedded derivative.

617Election for section 616 not to applyU.K.

(1)A company may elect that section 616 is not to apply in relation to its contracts.

(2)But such an election does not apply to a contract if—

(a)the contract is a contract of long-term insurance, or

(b)the underlying subject matter of the embedded derivative is, or includes, commodities.

(3)An election under this section—

(a)must be made before the end of the first applicable accounting period of the company, and

(b)is irrevocable.

(4)In subsection (3) “the first applicable accounting period” means the first accounting period in which the conditions in section 616(1) are met.

(5)Section 618 makes further provision about elections under this section.

618Elections under section 617: groups of companiesU.K.

(1)If—

(a)a company makes an election under section 617 in relation to its contracts, and

(b)another company, which is a member of the same group as the company making the election, is a party to a contract to which the election applies,

the other company is treated, in relation to that contract, as if it had also made such an election.

(2)If—

(a)a company (“the electing company”) makes an election under section 617 in relation to its contracts,

(b)another company (“the transferee”) becomes a party to a contract to which section 584 (hybrid derivatives with embedded derivatives) or section 586 (other contracts with embedded derivatives) applies, in place of the electing company (whether before or after the election is made), and

(c)the transferee is a member of the same group of companies as the electing company at the time of the transfer,

the transferee is treated, in relation to the contract mentioned in paragraph (b), as if it had also made such an election.

(3)If—

(a)a company (“A”) is treated under section 584 or 586 as a party to a relevant contract in relation to which section 616(1) applies,

(b)another company (“B”) becomes a party to that contract in place of A,

(c)A and B are members of the same group of companies when B becomes a party to the contract, and

(d)section 616(1) does not apply in relation to B's other relevant contracts because of an election under section 617 (whenever made),

subsection (4) applies, unless A, subsequent to B's becoming a party to the contract, makes such an election.

(4)B is treated, in relation to the contract mentioned in subsection (3)(b), as if section 616(1) applied in relation to it.

(5)In this section, references to a company being a member of the same group of companies are to be read in accordance with section 170 of TCGA 1992 (interpretation of sections 171 to 181 of that Act: groups).

Partnerships involving companiesU.K.

619Partnerships involving companiesU.K.

(1)This section applies if—

(a)a trade or business is carried on by a firm,

(b)any of the partners in the firm is a company (a “company partner”), and

(c)the firm is a party to a contract which is a derivative contract or would be a derivative contract if the firm were a company.

(2)No credits or debits may be brought into account in accordance with this Part in respect of the contract in calculating the profits and losses of the trade or business for corporation tax purposes under section 1259 (calculation of firm's profits and losses).

(3)Instead, each company partner must bring into account in accordance with this Part credits and debits in respect of the contract for each of its accounting periods in which the conditions in subsection (1) are met.

(4)Sections 620 (determination of credits and debits by company partners) and 621 (company partners using fair value accounting) contain special rules about the credits and debits to be brought into account under subsection (3).

(5)In sections 620 and 621 “company partner” has the same meaning as in this section.

620Determination of credits and debits by company partnersU.K.

(1)The credits and debits to be brought into account under section 619(3) are to be determined separately for each company partner as follows.

(2)The contract entered into or acquired by the firm is treated as if it were instead entered into or acquired by the company partner for the purposes of the trade or business which the company partner carries on.

(3)Anything done by or in relation to the firm in connection with the contract is treated as done by or in relation to the company partner.

(4)So far as exchange gains or losses arising from the contract are recognised in the firm's—

(a)statement of total recognised gains and losses,

(b)statement of recognised income and expense,

(c)statement of changes in equity, or

(d)statement of income and retained earnings,

they are treated as if they had been recognised in the corresponding statement of the company partner.

(5)The credits and debits in the case of each company partner are the partner's appropriate share of the total credits and debits determined in accordance with subsections (2) to (4).

(6)A company partner's “appropriate share” is the share which would be apportioned to it on the assumption in subsection (7).

(7)The assumption is that the total credits and debits determined in accordance with subsections (2) to (4) are apportioned between the partners in the shares in which any profit or loss would be apportioned between them in accordance with the firm's profit-sharing arrangements.

621Company partners using fair value accountingU.K.

(1)This section applies if a company partner uses fair value accounting in relation to its interest in the firm.

(2)The credits and debits to be brought into account by the company partner under section 619(3) are to be determined on the basis of fair value accounting.

MiscellaneousU.K.

622Contracts ceasing to be derivative contractsU.K.

(1)This section applies if a company is a party to a relevant contract which ceases to be a derivative contract.

(2)The company is treated for the purposes of this Part as if it had disposed of the contract in a related transaction at the relevant time for consideration of an amount equal to the notional carrying value of the contract at that time.

(3)In this section “the relevant time” means the time when the contract ceases to be a derivative contract.

(4)For the purposes of this section, the “notional carrying value” of the contract at the relevant time is the amount which would have been [F65the tax-adjusted carrying value of the contract based on] the accounts of the company if a period of account had ended immediately before that time.

(5)See also section 662 (chargeable gains provision for contracts ceasing to be derivative contracts).

623Index-linked gilt-edged securities with embedded contracts for differencesU.K.

(1)This section applies to a derivative contract of a company for an accounting period if each of conditions A to D is met.

(2)Condition A is that the derivative contract is a relevant contract to which the company is treated as a party under section 585(2) (loan relationships with embedded derivatives) because of a creditor relationship of the company.

(3)Condition B is that the derivative contract is treated as a contract for differences by section 585(3) (contract treated as option, future or contract for differences).

(4)Condition C is that the creditor relationship is an index-linked gilt-edged security.

(5)Condition D is that the credits and debits which fall to be brought into account for the accounting period for the purposes of Part 5 (loan relationships) in respect of the host contract are non-trading credits and non-trading debits.

(6)The credits and debits which would fall to be brought into account in accordance with this Part in respect of the derivative contract for the accounting period apart from this section may not be so brought into account.

(7)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 subsection (2), and

• “index-linked gilt-edged security” has the same meaning as in Part 5 (see section 399(4)).

Chapter 5U.K.Continuity of treatment on transfers within groups

IntroductoryU.K.

624Introduction to ChapterU.K.

(1)This Chapter makes provision—

(a)about continuity of treatment in some cases in which a company replaces a member of the same group of companies as a party to a derivative contract, and

(b)about cases in which the company ceases to be a member of the group.

(2)For the meaning of references in this Chapter to a company replacing another as a party to a derivative contract, see section 627.

(3)In this Chapter, references to a company being a member of a group of companies are to be read in accordance with section 170 of TCGA 1992 (interpretation of sections 171 to 181 of that Act: groups).

(4)For modifications of this Chapter for insurance companies, see section 636.

Group member replacing another as party to derivative contractU.K.

625Group member replacing another as party to derivative contractU.K.

(1)This section applies if—

(a)there is a transaction within section 626(2) or a series of transactions within section 626(3),

(b)as a result one of the companies involved (“the transferee”) directly or indirectly replaces the other (“the transferor”) as a party to a derivative contract.

(2)The credits and debits to be brought into account in accordance with this Part in respect of the derivative contract are determined in accordance with subsections (3) to (5).

(3)For the accounting period in which the transaction or, as the case may be, the first of the transactions takes place, the transferor is treated as having entered into that transaction for consideration of an amount equal to the notional carrying value of the contract (see subsection (6)).

(4)For any accounting period in which the transferee is a party to the contract, it is treated as if it had acquired the contract for consideration of an amount equal to its notional carrying value.

(5)If a discount arises in respect of the transaction or series of transactions, the consideration is increased for the purposes of subsection (3) (but not subsection (4)) by the amount of the discount.

(6)For the purposes of this section—

(a)“discount” has same meaning as in section 480 (relevant non-lending relationships involving discounts), and

(b)the notional carrying value of a contract is the amount which would have been [F66its tax-adjusted carrying value based on] the accounts of the transferor if a period of account had ended immediately before the date when the transferor ceased to be a party to the contract.

(7)[F67Part 4 of TIOPA 2010] (provision not at arm's length) does not apply in relation to the amounts in respect of which credits or debits are to be brought into account under this section.

(8)This section is subject to sections 628 (transferor using fair value accounting) and 629 (tax avoidance).

626Transactions to which section 625 appliesU.K.

(1)This section applies for the purposes of section 625(1)(a).

(2)A transaction is within this subsection if it is a related transaction between two companies which are—

(a)members of the same group, and

(b)within the charge to corporation tax in respect of that transaction.

(3)A series of transactions is within this subsection if it is a series of transactions having the same effect as a related transaction between two companies each of which—

(a)has been a member of the same group at any time in the course of that series of transactions, and

(b)would be within the charge to corporation tax in respect of such a related transaction.

627Meaning of company replacing another as party to derivative contractU.K.

(1)References in this Chapter to one company (“A”) replacing another company (“B”) as a party to a derivative contract include references to A becoming a party to a derivative contract which—

(a)confers rights within subsection (2),

(b)imposes liabilities within subsection (2), or

(c)both confers such rights and imposes such liabilities.

(2)Rights or liabilities are within this subsection if they are equivalent to those of B under a derivative contract to which B has previously ceased to be a party.

Exceptions to section 625U.K.

628Transferor using fair value accountingU.K.

(1)This section applies instead of section 625 if, in a case where that section would otherwise apply, the transferor uses fair value accounting as respects the derivative contract.

(2)The amount which is to be brought into account by the transferor in respect of—

(a)the transaction mentioned in that section, or

(b)the series of transactions mentioned in that section taken together,

is the fair value of the derivative contract as at the date of transfer to the transferee.

(3)For any accounting period in which the transferee is a party to the contract, for the purpose of determining the credits and debits to be brought into account in respect of the contract in accordance with this Part, the transferee is treated as if it had acquired the contract for consideration of an amount equal to the fair value of the contract as at the date of transfer to it.

(4)If a discount arises in respect of the transaction or series of transactions, the amount to be brought into account under subsection (2) is increased by the amount of the discount.

(5)In this section—

• “discount” has the same meaning as in section 480 (relevant non-lending relationships involving discounts), and

• “the transferor” and “the transferee” have the same meaning as in section 625.

F68629Tax avoidanceU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transferee leaving group after replacing transferor as party to derivative contractU.K.

630Introduction to sections 631 and 632U.K.

(1)Sections 631 and 632 apply if—

(a)section 625 (group member replacing another as party to derivative contract) applies because of a transaction or series of transactions within section 626(2) or (3), and

(b)before the end of the relevant 6 year period and while still a party to the relevant derivative contract, the transferee ceases to be a member of the relevant group.

(2)But the transferee is not to be treated for the purposes of this section and sections 631 and 632 as having left the relevant group if—

(a)rights and liabilities under a derivative contract are transferred in the course of a transfer or merger in relation to which Chapter 9 (European cross-border transfers of business) or Chapter 10 (European cross-border mergers) applies, and

(b)the transferee ceases to be a member of the relevant group in consequence of the transfer or merger.

(3)In a case where subsection (2) applies, if the transferee becomes a member of another group in consequence of the transfer or merger, it is to be treated for the purposes of this section and sections 631 and 632 as if the relevant group and the other group were the same.

(4)In this section and sections 631 and 632—

• “the relevant 6 year period” means the period of 6 years following—

  (a)

  in a case where section 625 applies because of a transaction within section 626(2) (“case A”), that transaction, or

  (b)

  in a case where section 625 applies because of a series of transactions within section 626(3) (“case B”), the last transaction of that series,

• “the relevant derivative contract” means the derivative contract mentioned in section 625(1),

• “the relevant group” means—

  (a)

  in case A, the group mentioned in section 626(2),

  (b)

  in case B, the group mentioned in section 626(3), and

• “the transferee” has the same meaning as in section 625.

631Transferee leaving group otherwise than because of exempt distributionU.K.

(1)This section applies if—

(a)the transferee ceases to be a member of the relevant group, and

(b)it does not so cease just because of a distribution which is exempt [F69as a result of section 1075 of CTA 2010 (exempt distributions)].

(2)F70... This Part applies as if—

(a)the transferee had assigned its rights and liabilities under the relevant derivative contract immediately before so ceasing,

(b)the assignment had been for consideration of an amount equal to their fair value at that time, and

(c)the transferee had immediately reacquired them for consideration of the same amount.

F71(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F71(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

632Transferee leaving group because of exempt distributionU.K.

(1)This section applies if—

(a)the transferee ceases to be a member of the relevant group just because of a distribution which is exempt [F72as a result of section 1075 of CTA 2010 (exempt distributions),] and

(b)there is a chargeable payment within the meaning of [F73section 1088(1) of CTA 2010] (chargeable payments connected with exempt distributions) within 5 years after the making of the distribution.

(2)F74... This Part applies as if—

(a)the transferee had assigned its rights and liabilities under the relevant derivative contract immediately before that chargeable payment was made,

(b)the assignment had been for consideration of an amount equal to their fair value immediately before the transferee ceased to be a member of the relevant group, and

(c)the transferee had immediately reacquired them for consideration of the same amount.

F75(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F75(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 6U.K.Special kinds of company

Mutual trading companiesU.K.

633Mutual trading companiesU.K.

For the purposes of this Part, activities carried on by a company in the course of any mutual trading are treated as not constituting the whole or any part of a trade.

Insurance companiesU.K.

634Insurance companiesU.K.

[F76(1)]For the purposes of this Part, activities carried on by a company in the course of—

(a)any mutual insurance or other mutual business which is not life assurance business, F77...

F77(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

are treated as not constituting the whole or any part of a trade.

[F78(2)In the case of activities carried on by a company in the course of any basic life assurance and general annuity business, provision corresponding to that made by subsection (1) is made by section 88 of FA 2012 for the purpose of applying the I - E rules.]

635Creditor relationships: embedded derivatives which are optionsU.K.

(1)This section applies if in any accounting period—

(a)a company is a party to a creditor relationship for the purposes of its [F79basic life assurance and general annuity business], and

(b)that creditor relationship is one in relation to which sections 415 and 585 (which both apply to loan relationships with embedded derivatives) would have effect but for the fact that the company accounts for the creditor relationship at fair value through profit and loss.

(2)[F80For the purpose of applying the I - E rules, this Part] and Part 5 (loan relationships) have effect for that accounting period as they would if the creditor relationship were one in relation to which those sections have effect.

636Modifications of Chapter 5U.K.

(1)Chapter 5 (continuity of treatment on transfers within groups) has effect in relation to insurance companies with the following modifications.

(2)Section 625(1)(a) (which sets out one of the conditions for that section to apply) has effect as if for “section 626(2)” there were substituted “section 626(2), (2A) or (2B)”.

(3)Section 626 (transactions to which section 625 applies) has effect as if after subsection (2) there were inserted—

“(2A)A transaction is within this subsection if it is a transfer between two companies of business consisting of the effecting or carrying out of contracts of long-term insurance which has effect under an insurance business transfer scheme.

(2B)A transaction is within this subsection if it is a transfer between two companies which is a qualifying overseas transfer.

[F81(2C)In subsection (2B) “qualifying overseas transfer” means so much of a transfer of the whole or any part of the business of an overseas life insurance company carried on through a permanent establishment in the United Kingdom as takes place in accordance with an authorisation granted outside the United Kingdom for the purposes of [F82Article 39 of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II)].”]

(4)Section 625 (group member replacing another as party to derivative contract) does not apply as a result of a transaction or series of transactions within section 626(2) or (3) in relation to a transfer of an asset, or of rights or duties under or an interest in an asset, if[F83, immediately before or after the transfer, the asset was held for the purposes of a company's long-term business (but, in the case of an overseas life insurance company, ignoring assets which are not UK assets (within the meaning of section 117 of FA 2012)).]

(5)Section 625 does not apply as a result of a transaction within section 626(2A) or (2B) in relation to a transfer of an asset, or of rights or duties under or an interest in an asset, if the asset—

(a)was within one of [F84the applicable categories] immediately before the transfer, and

(b)is not within that category immediately after it.

[F85(5A)For the purposes of subsection (5)(a) “the applicable categories” means—

(a)in the case of a UK life insurance company, the long-term business categories or a category of assets which are not held for the purposes of its long-term business, and

(b)in the case of an overseas life insurance company, the UK long-term business categories, a category of UK assets which are not held for the purposes of its long-term business or a category of assets which are held by it but which are not UK assets.]

(6)Subsection (7) applies for the purposes of subsection (5) if one of the companies is an overseas life insurance company.

(7)An asset is taken to be within the same category both immediately before the transfer and immediately after it if the asset—

(a)was within one category immediately before the transfer, and

(b)is within the corresponding category immediately after it.

[F86(8)For the purposes of this section—

(a)“the long-term business categories” has the same meaning as in section 116 of FA 2012, and “the UK long-term business categories” and “UK assets” have the same meanings as in section 117 of FA 2012, and

(b)section 122 of FA 2012 applies as it applies for the purposes of Chapter 8 of Part 2 of that Act.]

Investment and venture capital trustsU.K.

637Investment trusts: profits or losses of a capital natureU.K.

(1)Profits or losses of a capital nature arising to an investment trust from a derivative contract may not be brought into account as credits or debits in accordance with this Part.

(2)For the purposes of this section, “profits or losses of a capital nature” means profits or losses which—

(a)are accounted for through the capital column of the income statement in accordance with the Statement of Recommended Practice, or

(b)would have been so accounted for if that Statement had been applied correctly.

(3)“The Statement of Recommended Practice”, in relation to an accounting period for which it is required or permitted to be used, means—

(a)the Statement of Recommended Practice relating to Investment Trust Companies, issued by the Association of Investment Trust Companies in January 2003, as from time to time modified, amended or revised, or

(b)any subsequent Statement of Recommended Practice relating to investment trusts, as from time to time modified, amended or revised.

(4)The Treasury may by order amend the definition of “profits or losses of a capital nature” in subsection (2), so far as it applies in relation to an investment trust which prepares accounts in accordance with international accounting standards.

638Venture capital trusts: profits or losses of a capital natureU.K.

(1)Profits or losses of a capital nature arising to a venture capital trust from a derivative contract may not be brought into account as credits or debits in accordance with this Part.

(2)For the purposes of this section, “profits or losses of a capital nature” means profits or losses which—

(a)are accounted for through the capital column of the income statement in accordance with the Statement of Recommended Practice, or

(b)would have been so accounted for if the venture capital trust had been an investment trust and that Statement had been applied correctly.

(3)In this section “the Statement of Recommended Practice” has the meaning given by section 637(3) (investment trusts: profits or losses of a capital nature).

(4)The Treasury may by order amend the definition of “profits or losses of a capital nature” in subsection (2), so far as it applies in relation to a venture capital trust which prepares accounts in accordance with international accounting standards.

Chapter 7U.K.Chargeable gains arising in relation to derivative contracts

IntroductionU.K.

639Overview of ChapterU.K.

(1)This Chapter makes provision about cases in which—

(a)credits and debits are not to be brought into account in accordance with section 574 (non-trading credits and debits to be brought into account under Part 5: loan relationships) (see sections 640 and 643 to 650), but

(b)instead profits arising to a company from its derivative contracts are chargeable to corporation tax as chargeable gains (see sections 641 to 650).

(2)This Chapter also makes provision about cases in which—

(a)credits and debits are not to be brought into account in accordance with section 573 (trading credits and debits to be brought into account under Part 3: trading income) or section 574 (non-trading credits and debits to be brought into account under Part 5: loan relationships) (see section 651), but

(b)instead provisions relating to corporation tax on chargeable gains apply in relation to derivative contracts (see sections 652 to 658).

Some credits and debits not to be brought into account under Part 5U.K.

640Credits and debits not to be brought into account under Part 5U.K.

(1)If any of the provisions in subsection (2) applies to a derivative contract of a company for an accounting period, section 574 (non-trading credits and debits to be brought into account under Part 5: loan relationships) does not apply to the relevant credits and debits.

(2)The provisions are—

(a)section 643 (contracts relating to land or certain tangible movable property),

(b)section 645 (creditor relationships: embedded derivatives which are options),

(c)section 648 (creditor relationships: embedded derivatives which are exactly tracking contracts for differences), and

(d)section 650 (property based total return swaps).

(3)For the meaning of “relevant credits” and “relevant debits”, see section 659.

(4)For the treatment of the relevant credits and debits in the case of a derivative contract to which section 643, 645, 648 or 650 applies, see section 641 (derivative contracts to be taxed on a chargeable gains basis).

Some derivative contracts to be taxed on a chargeable gains basisU.K.

641Derivative contracts to be taxed on a chargeable gains basisU.K.

(1)This section applies to a derivative contract of a company for an accounting period if any of the provisions in subsection (2) applies to the derivative contract for the period.

(2)The provisions are—

(a)section 643 (contracts relating to land or certain tangible movable property),

(b)section 645 (creditor relationships: embedded derivatives which are options),

(c)section 648 (creditor relationships: embedded derivatives which are exactly tracking contracts for differences), and

(d)section 650 (property based total return swaps).

(3)For the purposes of corporation tax on chargeable gains—

(a)if C exceeds D, a chargeable gain equal to the amount of the excess is treated as accruing to the company in the accounting period,

(b)if D exceeds C, an allowable loss equal to the amount of the excess is treated as accruing to the company in the accounting period.

(4)“C” means the sum of the relevant credits for the accounting period in respect of the derivative contract.

(5)“D” means the sum of the relevant debits for the accounting period in respect of the derivative contract.

(6)For a case in which this section does not apply, see section 642.

(7)See also section 663 (carry back of net losses on derivative contracts to which this section applies).

642Exception from section 641U.K.

(1)Section 641 does not apply to a derivative contract to which section 645 applies if, on the assumptions in subsection (2), paragraph 2 of Schedule 7AC to TCGA 1992 (substantial shareholding exemptions: gain on disposal of asset related to shares not a chargeable gain) would apply to the gain mentioned in subsection (2)(d).

(2)Those assumptions are that—

(a)the rights and liabilities treated as comprised in the derivative contract were contained in a separate contract,

(b)that separate contract was an option,

(c)that option was disposed of at the end of the accounting period, and

(d)a gain accrued to the company on the disposal for the purposes of corporation tax on chargeable gains.

Derivative contracts to which sections 640 and 641 applyU.K.

643Contracts relating to land or certain tangible movable propertyU.K.

(1)This section applies to a derivative contract of a company for an accounting period if conditions A, B [F87, C and D] are met.

(2)Condition A is that the underlying subject matter of the derivative contract consists of either or both of the following—

(a)land,

(b)tangible movable property, other than commodities which are tangible assets.

(3)Condition B is that the company is not a party to the derivative contract at any time in the accounting period for the purposes of a trade carried on by it.

(4)Condition C is that the company is not an excluded body.

[F88(4A)Condition D is that no two or more of the parties to the derivative contract are connected persons.]

(5)For the case where the underlying subject matter of a derivative contract also includes income from property within subsection (2)(a) or (b), see section 644.

644Income to be left out of account in determining whether section 643 appliesU.K.

(1)This section applies if the underlying subject matter of a derivative contract includes income from property within section 643(2)(a) or (b).

(2)If that income is subordinate income, it is left out of account in determining for the purposes of section 643 whether condition A is met.

(3)Income is “subordinate income” if it is—

(a)subordinate in relation to so much of the underlying subject matter of the derivative contract as consists of property within section 643(2)(a) or (b), or

(b)of small value in comparison with the value of the underlying subject matter as a whole.

(4)For the purposes of this section, whether part of the underlying subject matter of a derivative contract of a company is subordinate or of small value is to be determined by reference to the time when the company enters into or acquires the contract.

645Creditor relationships: embedded derivatives which are optionsU.K.

(1)This section applies to a derivative contract of a company for an accounting period if each of conditions A to E is met.

(2)Condition A is that the derivative contract is a relevant contract to which the company is treated as a party under section 585(2) (loan relationships with embedded derivatives) because of a creditor relationship of the company.

(3)Condition B is that the derivative contract is treated as an option by section 585(3) (contract treated as option, future or contract for differences).

(4)Condition C is that the underlying subject matter of the derivative contract—

(a)is qualifying ordinary shares, or

(b)is mandatorily convertible preference shares.

(5)Condition D is that the company is not a party to the creditor relationship at any time in the accounting period for the purposes of a trade carried on by it.

(6)Condition E is that the company is not an excluded body.

(7)Where this section applies to a derivative contract, the asset representing the creditor relationship is treated for corporation tax purposes as not being a qualifying corporate bond.

(8)See also—

(a)section 647 (meaning of certain expressions in this section), and

(b)section 670 (treatment of net gains and losses on exercise of option).

646Exclusions from section 645U.K.

(1)Section 645 does not apply to a derivative contract of a company for an accounting period if condition A or B is met in the period.

(2)Condition A is that the rights and liabilities which fall to be treated as comprised in the derivative contract are such that the extent to which shares may be acquired in accordance with them is to be determined using a cash value—

(a)which is specified in the contract for the asset representing the creditor relationship mentioned in section 645(2), or

(b)which is or will be ascertainable by reference to that contract.

(3)Condition B is that the rights and liabilities which fall to be treated as comprised in the derivative contract are such that—

(a)the company is entitled or obliged to receive a payment instead of the shares which are the underlying subject matter of the derivative contract, and

(b)the amount of that payment differs by more than an insignificant amount from the value of the shares which the company would be entitled to acquire in accordance with those rights and liabilities at the time it became entitled or obliged to receive the payment.

647Meaning of certain expressions in section 645U.K.

(1)This section applies for the purposes of section 645.

(2)“Mandatorily convertible preference shares” means shares which—

(a)represent the creditor relationship mentioned in section 645(2),

(b)are not qualifying ordinary shares, and

(c)are issued upon terms which stipulate that they must be converted into, or exchanged for, qualifying ordinary shares by a relevant time.

(3)In subsection (2) “relevant time” means a time no more than 24 hours after the acquisition of the shares by a person who, immediately before that acquisition, had the creditor relationship.

(4)“Qualifying ordinary shares” means shares in a company which satisfy conditions A and B.

(5)Condition A is that the shares are all or part of the issued share capital (however described) of the company, other than—

(a)capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the profits of the company, or

(b)capital the holders of which have no right to a dividend of any description nor any other right to share in the profits of the company.

(6)Condition B is that the shares—

(a)are listed on a recognised stock exchange, or

(b)are shares in a holding company or a trading company.

(7)In subsection (6) “holding company” and “trading company” have the same meaning as in section 165 of TCGA 1992 (see section 165A of that Act).

648Creditor relationships: embedded derivatives which are exactly tracking contracts for differencesU.K.

(1)This section applies to a derivative contract of a company for an accounting period if each of conditions A to F is met.

(2)Condition A is that the derivative contract is a relevant contract to which the company is treated as a party under section 585(2) (loan relationships with embedded derivatives) because of a creditor relationship of the company.

(3)Condition B is that the derivative contract is treated as a contract for differences by section 585(3) (contract treated as option, future or contract for differences).

(4)Condition C is that the derivative contract is an exactly tracking contract.

(5)Condition D is that the underlying subject matter of the derivative contract is qualifying ordinary shares listed on a recognised stock exchange.

(6)Condition E is that the company is not a party to the creditor relationship at any time in the accounting period for the purposes of a trade carried on by it.

(7)Condition F is that the company is not an excluded body.

(8)Where this section applies to a derivative contract, the asset representing the creditor relationship is treated for corporation tax purposes as not being a qualifying corporate bond.

(9)See also section 672 (treatment of net gains and losses on disposal of certain embedded derivatives).

649Meaning of certain expressions in section 648U.K.

(1)This section applies for the purposes of section 648.

(2)“Exactly tracking contract” means a contract where the amount which is to be paid to discharge the rights and liabilities which fall to be treated as comprised in the contract is equal to the amount found by applying R% to C, where—

• R% is the percentage change (if any) over the relevant period in—

  • (a) the value of the assets which are the underlying subject matter of the contract, or

  • (b) any index of the value of those assets, and

• C is the amount falling to be regarded in accordance with generally accepted accounting practice as the cost of the asset representing the creditor relationship mentioned in section 648(2) on the date when that asset came into existence.

(3)In subsection (2) “the relevant period” means—

(a)the period between—

(i)the date when the asset representing that creditor relationship came into existence, and

(ii)the date when the debtor relationship corresponding to that creditor relationship comes to an end, or

(b)any other period in which almost all of that period falls, and which differs from that period only for purposes connected with giving effect to a valuation in relation to rights or liabilities under that asset.

(4)“Qualifying ordinary shares” means shares in a company which are all or part of the issued share capital (however described) of the company, other than—

(a)capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the profits of the company, or

(b)capital the holders of which have no right to a dividend of any description nor any other right to share in the profits of the company.

650Property based total return swapsU.K.

(1)This section applies to a derivative contract of a company for an accounting period if each of conditions A [F89to H] is met.

(2)Condition A is that the derivative contract is a contract for differences.

(3)Condition B is that one or more indices are specified in the contract.

(4)Condition C is that at least one index so specified (“the capital value index”) is an index of changes in the value of land.

(5)Condition D is that the underlying subject matter of the derivative contract also includes interest rates.

(6)Condition E is that the company is not a party to the derivative contract at any time in the accounting period for the purposes of a trade carried on by it.

(7)Condition F is that the company is not an excluded body.

[F90(8)Condition G is that no two or more of the parties to the derivative contract are connected persons.

(9)Condition H is that the securing of a tax advantage is neither the main purpose, nor one of the main purposes, for which the company is a party to the derivative contract.

“Tax advantage” has the meaning given by section 1139 of CTA 2010.]

Some credits and debits not to be brought into account under Part 3 or 5U.K.

651Credits and debits not to be brought into account under Part 3 or Part 5U.K.

(1)If the provisions in subsection (2)(a) or (b) apply to a derivative contract for an accounting period, sections 573 (trading credits and debits to be brought into account under Part 3: trading income) and 574 (non-trading credits and debits to be brought into account under Part 5: loan relationships) do not apply to the relevant credits and debits.

(2)The provisions are—

(a)sections 653 to 655 (issuers of securities with embedded derivatives: deemed options), and

(b)section 658 (issuers of securities with embedded derivatives: deemed contracts for differences).

(3)For the cases in which sections 653 to 655 and section 658 apply, see sections 652 and 656 respectively.

(4)For the provision which applies where sections 653 to 655 or 658 apply, see those sections.

Issuers of securities with embedded derivatives: deemed optionsU.K.

652Introduction to sections 653 to 655U.K.

(1)Sections 653 to 655 apply to a derivative contract of a company for an accounting period if each of conditions A to E is met.

(2)Condition A is that the derivative contract is a relevant contract to which the company is treated as a party under section 585(2) (loan relationships with embedded derivatives) because of a debtor relationship of the company.

(3)Condition B is that the derivative contract is treated as an option by section 585(3) (contract treated as option, future or contract for differences).

(4)Condition C is that the underlying subject matter of the derivative contract is shares.

(5)Condition D is that at the time when the company became a party to the debtor relationship—

(a)it was not carrying on a banking business or a business as a securities house, or

(b)if it was carrying on such a business, it did not become a party to the debtor relationship in the ordinary course of that business.

(6)Condition E is that the company is not an excluded body.

(7)In this section “option” is to be construed as if section 580(2) and (3) (meaning of “option”) were omitted.

653Shares issued or transferred as a result of exercise of deemed optionU.K.

(1)Subsections (2) and (3) apply if—

(a)the option mentioned in section 652(3) is exercised at any time in the accounting period, and

(b)shares are issued or transferred in fulfilment of the obligations under the option (“the relevant disposal”).

(2)Section 144(2) of TCGA 1992 (exercise of options) applies to the relevant disposal as if the [F91tax-adjusted carrying value] of the option at the time the company became a party to the debtor relationship mentioned in section 652(2) were the consideration for the grant of the option.

(3)So far as it would otherwise apply, section 17(1) of TCGA 1992 (deemed market value consideration) does not apply to the relevant disposal.

654Payment instead of disposal on exercise of deemed optionU.K.

(1)Subsection (2) applies if—

(a)the option mentioned in section 652(3) is exercised at any time in the accounting period,

(b)no shares are issued or transferred in fulfilment of the obligations under the option, and

(c)an amount is paid in fulfilment of those obligations.

(2)If —

(a)CV exceeds X, a chargeable gain equal to the amount of the excess is treated as accruing to the company in the accounting period,

(b)X exceeds CV, an allowable loss equal to the amount of the excess is treated as accruing to the company in the accounting period.

(3)In this section—

• “CV” means—

  (a)

  if the company was a party to the debtor relationship mentioned in section 652(2) at the time it was created, the [F92tax-adjusted carrying value] of the option at that time, or

  (b)

  if the company became a party to that relationship at a later time, the [F92tax-adjusted carrying value] of the option at that time,

• “X” means the amount paid by the debtor in fulfilment of the obligations under the debtor relationship reduced (but not below nil) by the fair value of the host contract at the date on which the option is exercised, and

• “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 debtor relationship.

655Ceasing to be party to debtor relationship when deemed option not exercisedU.K.

(1)Subsection (2) applies if the company ceases to be a party to the debtor relationship mentioned in section 652(2) at a time when the option mentioned in section 652(3) has not been exercised.

(2)The company is treated for the purposes of corporation tax on chargeable gains—

(a)as having acquired an asset for consideration of an amount equal to Y, and

(b)as having disposed of that asset for consideration of an amount equal to CV.

(3)In this section—

• “CV” has the same meaning as in section 654,

• “Y” means—

  (a)

  if the company ceases to be a party to the debtor relationship as a result of the redemption or repayment of the liability representing that relationship, the amount paid by the company, or

  (b)

  otherwise, the consideration given by the company on its ceasing to be a party to that relationship,

  in either case reduced (but not below nil) by the fair value of the host contract at the date on which it so ceases, and

• “the host contract” has the same meaning as in section 654.

Issuers of securities with embedded derivatives: deemed contracts for differencesU.K.

656Introduction to section 658U.K.

(1)Section 658 (chargeable gain or allowable loss treated as accruing) applies to a derivative contract of a company for an accounting period if each of conditions A to F is met.

(2)Condition A is that the derivative contract is a relevant contract to which the company is treated as a party under section 585(2) (loan relationships with embedded derivatives) because of a debtor relationship of the company.

(3)Condition B is that the derivative contract—

(a)is treated as a contract for differences by section 585(3) (contract treated as option, future or contract for differences), and

(b)is not within section 652.

(4)Condition C is that the derivative contract is an exactly tracking contract.

(5)Condition D is that the underlying subject matter of the derivative contract is shares.

(6)Condition E is that at the time when the company became a party to the debtor relationship—

(a)it was not carrying on a banking business or a business as a securities house, or

(b)if it was carrying on such a business, it did not become a party to the debtor relationship in the ordinary course of that business.

(7)Condition F is that the company is not an excluded body.

(8)For the meaning of “exactly tracking contract”, see section 657.

657Meaning of “exactly tracking contract” in section 656U.K.

(1)This section applies for the purposes of section 656.

(2)“Exactly tracking contract” means a contract where the amount which is to be paid to discharge the rights and liabilities which fall to be treated as comprised in the contract is equal to the amount found by applying R% to C, where—

• R% is the percentage change (if any) over the relevant period in—

  • (a) the value of the assets which are the underlying subject matter of the contract, or

  • (b) any index of the value of those assets, and

• C is the amount falling to be regarded in accordance with generally accepted accounting practice as the proceeds of issue of the liability which represents the debtor relationship mentioned in section 656(2).

(3)In subsection (2) “the relevant period” means—

(a)the period between—

(i)the date when the liability representing that debtor relationship came into existence, and

(ii)the date when the creditor relationship corresponding to that debtor relationship comes to an end, or

(b)any other period in which almost all of that period falls, and which differs from that period only for purposes connected with giving effect to a valuation in relation to rights or liabilities under the liability representing that debtor relationship.

658Chargeable gain or allowable loss treated as accruingU.K.

(1)Subsection (2) applies if—

(a)the debtor relationship mentioned in section 656(2) comes to an end, and

(b)an amount (“the discharge amount”) is paid to discharge all the company's obligations under that relationship.

(2)For the purposes of corporation tax on chargeable gains, a chargeable gain or allowable loss equal to the amount mentioned in subsection (3) is treated as accruing to the company.

(3)That amount is the amount of the gain or loss (as the case may be) which would accrue on the assumptions in subsection (4).

(4)Those assumptions are that—

(a)the derivative contract is an asset of the company,

(b)there is a disposal of that asset at the time when the debtor relationship comes to an end,

(c)the consideration for the disposal of that asset is equal to the relevant amount, and

(d)the cost of the asset is equal to the discharge amount.

(5)In subsection (4) “the relevant amount” means—

(a)if the company was a party to the debtor relationship at the time it was created, the amount of the proceeds of issue of the security representing that relationship, or

(b)if the company became a party to the debtor relationship after that time, the amount of the [F93tax-adjusted carrying value] of the host contract at that time.

(6)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 debtor relationship.

InterpretationU.K.

659Meaning of “relevant credits” and “relevant debits”U.K.

(1)This section applies for the purposes of this Chapter.

(2)In the case of a derivative contract which is not one to which section 650 (property based total return swaps) applies for an accounting period, the relevant credits and debits are the credits and debits which are given in relation to the derivative contract for the accounting period by section 595.

(3)In the case of a derivative contract to which section 650 applies for an accounting period, the relevant credits and debits are the credits and debits which—

(a)are given in relation to the derivative contract for the accounting period by section 595, and

(b)are within subsection (4).

(4)The credits and debits are those found for the period by applying R% to N, where—

• N is the amount which is the notional principal amount in the case of the derivative contract, and

• R% is the percentage change (if any) in the capital value index over the relevant period.

[F94(4A)But if the derivative contract has effect such that the return arising from the contract, so far as calculated by reference to that index, is calculated by reference to a percentage (“the capped percentage”) which is closer to zero than the full percentage change in that index over that period (or which is zero even though there has been a change in that index), for the purposes of subsection (4) R% is the capped percentage.]

(5)In subsection (4) “the relevant period” means—

(a)the accounting period, if the company is a party to the derivative contract throughout that period,

(b)in any other case, any part of the accounting period throughout which the company is a party to the derivative contract.

(6)For the meaning of “the capital value index”, see section 650(4).

Chapter 8U.K.Further provision about chargeable gains and derivative contracts

Company ceasing to be party to certain contractsU.K.

660Contract relating to holding in OEIC, unit trust or offshore fundU.K.

(1)This section applies if—

(a)a company is a party to a relevant contract in two successive accounting periods,

(b)section 587 (contract relating to holding in OEIC, unit trust or offshore fund) applies in relation to the relevant contract for the second of those periods but not the first, and

(c)immediately before the beginning of the second period the relevant contract was a chargeable asset.

(2)The company must bring into account for the accounting period in which it ceases to be a party to the contract the amount of any chargeable gain or allowable loss which would have been treated as accruing to it on the assumptions in subsection (3).

(3)Those assumptions are that—

(a)the company disposed of the relevant contract immediately before the beginning of the second period mentioned in subsection (1), and

(b)the disposal was for consideration of an amount equal to the value (if any) given to the relevant contract in the accounts of the company at the end of the first such period.

661Contract which becomes derivative contractU.K.

(1)This section applies if—

(a)a company is a party to a relevant contract which (not having been a derivative contract) becomes a derivative contract, and

(b)immediately before the relevant contract becomes a derivative contract it is a chargeable asset.

(2)The company must bring into account for the accounting period in which it ceases to be a party to the relevant contract the amount of any chargeable gain or allowable loss which would have been treated as accruing to it on the assumptions in subsection (3).

(3)Those assumptions are that—

(a)the company disposed of the relevant contract immediately before the relevant time, and

(b)the disposal was for consideration of an amount equal to the notional carrying value of the relevant contract at that time.

(4)In this section “the relevant time” means the time when the relevant contract becomes a derivative contract.

(5)Section 622(4) (meaning of “notional carrying value”) applies for the purposes of this section.

Contracts ceasing to be derivative contractsU.K.

662Contracts ceasing to be derivative contractsU.K.

(1)This section applies if a company is a party to a relevant contract which ceases to be a derivative contract.

(2)The company is treated for the purposes of corporation tax on chargeable gains as if it had acquired the contract immediately after the relevant time for consideration of an amount equal to the notional carrying value of the contract at that time.

(3)In this section “the relevant time” means the time when the contract ceases to be a derivative contract.

(4)Section 622(4) (meaning of “notional carrying value”) applies for the purposes of this section.

Carry back of net losses on certain derivative contractsU.K.

663Contracts to which section 641 appliesU.K.

(1)This section applies in the case of a company if—

(a)there are net section 641 losses for an accounting period (“the loss period”),

(b)there are net section 641 gains for a previous accounting period (“the gains period”),

(c)the gains period falls wholly or partly within the period of 24 months immediately preceding the start of the loss period, and

(d)within two years after the end of the loss period the company makes a claim in respect of the whole or a part of the net section 641 losses for the loss period.

(2)The net section 641 gains for the gains period are reduced (but not below nil) by the amount in respect of which the claim is made.

(3)And the net section 641 losses for the loss period are reduced by the amount in respect of which the claim is made.

(4)For the purposes of this section—

(a)the net section 641 gains for a later period are reduced so far as possible before the net section 641 gains for an earlier period, and

(b)where a gains period falls partly before the start of the 24 month period mentioned in subsection (1), only the appropriate fraction of the net section 641 gains for that period may be reduced.

(5)For the meaning of “net section 641 gains”, “net section 641 losses” and “the appropriate fraction”, see section 664.

664Meaning of certain expressions in section 663U.K.

(1)This section applies for the purposes of section 663.

(2)If for an accounting period L exceeds G, there are net section 641 losses for the period of an amount equal to the excess.

(3)If for an accounting period G exceeds the sum of L and N, there are net section 641 gains for the period of an amount equal to the excess.

(4)In this section—

• G is the sum of the amounts of any chargeable gains treated as accruing to the company in the period under section 641(3)(a) in respect of derivative contracts of the company (“section 641 gains”),

• L is the sum of the amounts of any allowable losses treated as accruing to the company in the period under section 641(3)(b) in respect of derivative contracts of the company (“section 641 losses”), and

• N is the sum of the amounts of any non-section 641 losses which would fall to be deducted in the period from section 641 gains, on the assumption in subsection (5).

(5)That assumption is that, as respects the accounting period, non-section 641 losses are treated as being deducted from non-section 641 gains, so far as possible, before any remainder is deducted from section 641 gains.

(6)The “appropriate fraction” is—

(7)In this section—

• “deducted” means deducted in accordance with section 8(1) of TCGA 1992 (company's total profits to include chargeable gains),

• “the gains period” has the same meaning as in section 663,

• “non-section 641 gains” means any chargeable gains accruing to the company in the accounting period, other than section 641 gains, and

• “non-section 641 losses” means any allowable losses of the company which may be deducted in the accounting period, other than section 641 losses.

Issuers of securities with embedded derivatives: equity instrumentsU.K.

665Introduction to section 666U.K.

(1)Section 666 (allowable loss treated as accruing) applies to a company for an accounting period if each of conditions A to F is met.

(2)Condition A is that the company is treated as a party to a relevant contract under section 585(2) (loan relationships with embedded derivatives) because of a debtor relationship of the company.

(3)Condition B is that the division mentioned in section 585(1) (loan relationships with embedded derivatives) in the case of the debtor relationship is between—

(a)rights and liabilities under a loan relationship, and

(b)rights and liabilities under an equity instrument of the company.

(4)Condition C is that the relevant contract is treated as an option by section 585(3) (contract treated as option, future or contract for differences).

(5)Condition D is that the company pays an amount in the accounting period to the person who is a party to the debtor relationship as creditor in discharge of any obligations under that relationship.

(6)Condition E is that at the time when the company became a party to the debtor relationship—

(a)it was not carrying on a banking business or a business as a securities house, or

(b)if it was carrying on such a business, it did not become a party to that relationship in the ordinary course of that business.

(7)Condition F is that the company is not an excluded body.

(8)In this section “option” is to be construed as if section 580(2) and (3) (meaning of “option”) were omitted.

666Allowable loss treated as accruingU.K.

(1)If A exceeds B, an allowable loss equal to the amount of the excess is treated as accruing to the company in the accounting period for the purposes of corporation tax on chargeable gains.

(2)In this section—

• A is the amount paid as mentioned in section 665(5) reduced (but not below nil) by an amount equal to the fair value of the host contract at the time that amount is paid,

• B is the amount treated as the [F95tax-adjusted carrying value] of the relevant contract mentioned in section 665(4) at the time the company became a party to the debtor relationship mentioned in section 665(2), and

• “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 debtor relationship.

Treatment of shares acquired in certain circumstancesU.K.

667Shares acquired on exercise of non-embedded optionU.K.

(1)This section applies if—

(a)a company is a party to a derivative contract in an accounting period,

(b)the derivative contract is a plain vanilla contract,

(c)the contract is an option,

(d)rights to acquire shares are comprised in the contract, and

(e)shares are acquired as a result of the exercise of any of those rights in the accounting period.

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

(a)if G exceeds L, increased by the amount of that excess,

(b)if L exceeds G, reduced by the amount of that excess,

and, in the case of a part disposal of those shares, section 42(2) of that Act (part disposals) has effect accordingly.

(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 of the shares.

(4)For the meaning of G and L, see section 669.

668Shares acquired on running of future to deliveryU.K.

(1)This section applies if—

(a)a company is a party to a derivative contract in an accounting period,

(b)the derivative contract is a plain vanilla contract,

(c)the contract is a future, and

(d)delivery is taken of shares in accordance with the terms of the future.

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

(a)if G exceeds L, increased by the amount of that excess,

(b)if L exceeds G, reduced by the amount of that excess,

and, in the case of a part disposal of those shares, section 42(2) of that Act (part disposals) has effect accordingly.

(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 of the shares.

(4)For the meaning of G and L, see section 669.

669Meaning of G and L in sections 667 and 668U.K.

(1)This section applies for the purposes of sections 667 and 668.

(2)G is the sum of the credits brought into account under section 574 (non-trading credits and debits to be brought into account under Part 5) in respect of the derivative contract in each relevant accounting period so far as referable, on a just and reasonable apportionment, to the shares acquired as a result of the exercise of rights mentioned in section 667(1)(e) or the delivery mentioned in section 668(1)(d).

(3)L is the sum of the debits brought into account under section 574 in respect of the derivative contract in each relevant accounting period, so far as so referable.

(4)In this section “relevant accounting period” means—

(a)the accounting period in which the disposal in question is made, or

(b)any previous accounting period.

Treatment of net gains and losses on exercise of optionU.K.

670Treatment of net gains and losses on exercise of optionU.K.

(1)This section applies if—

(a)a derivative contract is one to which section 645 (creditor relationships: embedded derivatives which are options) applies for an accounting period,

(b)rights to acquire shares fall to be treated as comprised in the derivative contract because of section 585(2), and

(c)any of those rights are exercised or otherwise disposed of in the accounting period.

(2)Subsection (3) applies if there is a disposal of the asset representing the creditor relationship mentioned in section 645(2).

(3)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.

(4)Subsection (5) applies if there is a disposal of all or any of the shares (“the relevant shares”) acquired—

(a)as a result of the exercise of rights mentioned in subsection (1)(c), and

(b)in circumstances where a disposal is deemed not to occur because of section 127 of TCGA 1992 (equation of original shares and new holding).

(5)For the purpose of calculating any chargeable gain accruing to the company on a disposal of all the relevant shares, 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,

and, in the case of a part disposal of those shares, section 42(2) of that Act (part disposals) has effect accordingly.

(6)If the amount of the excess in subsection (3)(b) or (5)(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 (3) or (5) (as the case may be), added to the amount of the consideration for the disposal so mentioned.

(7)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 a disposal mentioned in subsection (2) or (4) above.

(8)For the meaning of G, L and CV, see section 671.

671Meaning of G, L and CV in section 670U.K.

(1)This section applies for the purposes of section 670.

(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, so far as referable, on a just and reasonable apportionment, to the shares acquired as a result of the exercise of rights mentioned in section 670(1)(c).

(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, so far as so referable.

(4)CV is the amount by which the [F96tax-adjusted carrying value] of the host contract at the date on which the option is exercised exceeds the [F96tax-adjusted carrying value] of that contract at—

(a)the date on which the company became a party to the creditor relationship mentioned in section 645(2), or

(b)(if later) the date on which the derivative contract became one to which section 645 applies.

(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 645(2), and

• “relevant accounting period” means—

  (a)

  the accounting period in which the disposal in question is made, or

  (b)

  any previous accounting period.

Treatment of net gains and losses on disposal of certain embedded derivativesU.K.

672Treatment of net gains and losses on disposal of certain embedded derivativesU.K.

(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 672U.K.

(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 [F97tax-adjusted carrying value] of the host contract at the date of the disposal exceeds the [F97tax-adjusted 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—

  (a)

  the accounting period in which the disposal is made, or

  (b)

  any previous accounting period.

Chapter 9U.K.European cross-border transfers of business

IntroductionU.K.

674Introduction to ChapterU.K.

(1)This Chapter applies if—

(a)condition A or B is met, and

(b)each of the companies mentioned in subsection (2)(a) or (3)(a) makes a claim under this section,

but see section 677 (tax avoidance etc) and section 680 (disapplication of Chapter where transparent entities involved).

(2)Condition A is that—

(a)a company resident in one [F98relevant state] transfers to a company resident in another [F98relevant state] the whole or part of a business carried on in the United Kingdom,

(b)the transfer is wholly in exchange for shares or debentures issued by the transferee to the transferor, and

(c)immediately after the transfer the transferee is within the charge to corporation tax.

(3)Condition B is that—

(a)a company transfers part of its business to one or more companies,

(b)the transferor is resident in one [F99relevant state],

(c)the part of the transferor's business which is transferred is carried on by the transferor in the United Kingdom,

(d)at least one transferee is resident in a [F100relevant state] other than that in which the transferor is resident (and each transferee is resident in a [F100relevant state], but not necessarily the same one),

(e)the transferor continues to carry on a business after the transfer,

(f)immediately after the transfer each transferee is within the charge to corporation tax, and

(g)the transfer—

(i)is made in exchange for the issue of shares in or debentures of each transferee to each person holding shares in or debentures of the transferor, or

(ii)is not so made only because, and only so far as, a transferee is prevented from so issuing such shares or debentures by section 658 of the Companies Act 2006 (c. 46) (general rule against limited company acquiring own shares) or by a corresponding provision of the law of [F101a] member State preventing such an issue.

(4)In this Chapter—

• [F102“relevant state” means the United Kingdom or a member State;]

• “the transfer of business” means the transfer of business mentioned in subsection (2)(a) or (3)(a),

• “transferee” has the same meaning as in subsection (2) or (3), and

• “the transferor” has the same meaning as in subsection (2) or (3).

(5)For the meaning of “company” and “resident in a [F103relevant state]”, see section 681.

Transfers of derivative contracts at notional carrying valueU.K.

675Transfer of derivative contract at notional carrying valueU.K.

(1)This section applies if in the course of the transfer of business the transferor transfers the rights and liabilities under a derivative contract to a transferee.

(2)For the purpose of determining the credits and debits to be brought into account in respect of the derivative contract in accordance with this Part, the transferor and the transferee are treated as having entered into the transfer of those rights and liabilities for consideration of an amount equal to the notional carrying value of the contract.

(3)For the purposes of this section, the notional carrying value of a contract is the amount which would have been [F104its tax-adjusted carrying value based on] the accounts of the transferor if a period of account had ended immediately before the date when the transferor ceased to be a party to the contract.

(4)This section is subject to section 676 (transferor using fair value accounting).

676Transferor using fair value accountingU.K.

(1)This section applies instead of section 675 if, in a case where that section would otherwise apply, the transferor uses fair value accounting as respects the derivative contract.

(2)The amount which is to be brought into account by the transferor in respect of the transfer of the rights and liabilities mentioned in section 675(1) is the fair value of the derivative contract as at the date of transfer to the transferee.

(3)For any accounting period in which the transferee is a party to the derivative contract, for the purpose of determining the credits and debits to be brought into account in respect of the contract in accordance with this Part, the transferee is treated as if it had acquired the contract for consideration of an amount equal to the fair value of the contract as at the date of transfer to it.

Exception for tax avoidance cases and clearancesU.K.

677Tax avoidance etcU.K.

(1)This Chapter does not apply in relation to the transfer of business if—

(a)the transfer of business is not effected for genuine commercial reasons, or

(b)the transfer of business forms part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax.

(2)But subsection (1) does not prevent this Chapter from applying if before the transfer of business—

(a)the companies mentioned in section 674(2)(a) or (3)(a) have applied to the Commissioners for Her Majesty's Revenue and Customs, and

(b)the Commissioners have notified them that they are satisfied that subsection will not have that effect.

678Procedure on application for clearanceU.K.

(1)This section applies in relation to an application under section 677(2).

(2)The application must be in writing and must contain particulars of the operations which are to be effected.

(3)The Commissioners for Her Majesty's Revenue and Customs may by notice require the applicant to provide further particulars for the purpose of enabling them to make their decision.

(4)Such a notice may only be given within 30 days of the receipt of the application or of any further particulars previously required under subsection (3).

(5)If such a notice is not complied with within 30 days or such longer period as the Commissioners for Her Majesty's Revenue and Customs may allow, they need not proceed further on the application.

679Decision on application for clearanceU.K.

(1)The Commissioners for Her Majesty's Revenue and Customs must notify their decision on an application under section 677(2) to the applicant—

(a)within 30 days of receiving the application, or

(b)if they give a notice under section 678(3), within 30 days of the notice being complied with.

(2)If the Commissioners for Her Majesty's Revenue and Customs—

(a)notify the applicant that they are not satisfied as mentioned in section 677(2)(b), or

(b)do not notify their decision to the applicant within the time required by subsection (1),

the applicant may within 30 days of the notification or of that time require them to transmit the application to the tribunal, together with any notice given and further particulars provided under section 678(3).

(3)In that case any notification by the tribunal has effect for the purposes of section 677(2)(b) as if it were a notification by the Commissioners for Her Majesty's Revenue and Customs.

(4)If any particulars provided under section 678 do not fully and accurately disclose all facts and considerations material for the decision—

(a)of the Commissioners for Her Majesty's Revenue and Customs, or

(b)of the tribunal,

any resulting notification by the Commissioners for Her Majesty's Revenue and Customs or the tribunal is void.

Transparent entitiesU.K.

680Disapplication of Chapter where transparent entities involvedU.K.

(1)This Chapter does not apply in relation to the transfer of business if the transferor is a transparent entity.

(2)In this section “transparent entity” means a company which is resident in a member State F105... and which does not have an ordinary share capital.

InterpretationU.K.

681InterpretationU.K.

(1)In this Chapter “company” means any entity listed as a company in [F106Part A of Annex I] to the Mergers Directive.

(2)For the purposes of this Chapter, a company is resident in a [F107relevant state] if—

(a)it is within a charge to tax under the law of the [F108relevant state] as being resident for that purpose, and

(b)it is not regarded, for the purpose of any double taxation relief arrangements to which the [F108relevant state] is a party, as resident in a territory not within a [F107relevant state].

Chapter 10U.K.European cross-border mergers

IntroductionU.K.

682Introduction to ChapterU.K.

(1)This Chapter applies if the following conditions are met—

(a)conditions A to D,

(b)in the case of a merger within subsection (2)(a), (b) or (c), condition E, and

(c)in the case of a merger within subsection (2)(c) or (d), condition F,

but see section 686 (tax avoidance etc) and section 687 (disapplication of Chapter where transparent entities involved).

(2)Condition A is that—

(a)an SE is formed by the merger of two or more companies in accordance with Articles 2(1) and 17(2)(a) or (b) of Council Regulation (EC) No. 2157/2001 on the Statute for a European company (Societas Europaea),

(b)an SCE is formed by the merger of two or more co-operative societies, at least one of which is a society registered under [F109the Co-operative and Community Benefit Societies Act 2014], in accordance with Articles 2(1) and 19 of Council Regulation (EC) No. 1435/2003 on the Statute for a European Co-operative Society (SCE),

(c)a merger is effected by the transfer by one or more companies of all their assets and liabilities to a single existing company, or

(d)a merger is effected by the transfer by two or more companies of all their assets and liabilities to a single new company (other than an SE or an SCE) in exchange for the issue by the transferee, to each person holding shares in or debentures of a transferor, of shares or debentures.

(3)Condition B is that each merging company is resident in a [F110relevant state].

(4)Condition C is that the merging companies are not all resident in the same [F111relevant state].

(5)Condition D is that immediately after the merger the transferee is within the charge to corporation tax.

(6)Condition E is that—

(a)the transfer of assets and liabilities to the transferee in the course of the merger is made in exchange for the issue of shares or debentures by the transferee to each person holding shares in or debentures of a transferor, or

(b)that transfer is not so made only because, and only so far as, the transferee is prevented from so issuing such shares or debentures by section 658 of the Companies Act 2006 (c. 46) (general rule against limited company acquiring own shares) or by a corresponding provision of the law of [F112a] member State preventing such an issue.

(7)Condition F is that in the course of the merger each transferor ceases to exist without being in liquidation (within the meaning given by section 247 of the Insolvency Act 1986 (c. 45)).

(8)In this Chapter,

[F113(a)]“the merger” and “the merging companies” have the same meaning as in this section

[F114(b)“relevant state” means the United Kingdom or a member State.]

(9)See—

(a)section 683 for the meaning of “the transferee” and “transferor”, and

(b)section 688 for the meaning of “company”, “co-operative society” and “resident in a [F115relevant state]”.

683Meaning of “the transferee” and “transferor”U.K.

(1)In this Chapter, “the transferee” means—

(a)in relation to a merger within section 682(2)(a), the SE,

(b)in relation to a merger within section 682(2)(b), the SCE, and

(c)in relation to a merger within section 682(2)(c) or (d), the company to which assets and liabilities are transferred.

(2)In this Chapter “transferor” means—

(a)in relation to a merger within section 682(2)(a), a company merging to form the SE,

(b)in relation to a merger within section 682(2)(b), a co-operative society merging to form the SCE, and

(c)in relation to a merger within section 682(2)(c) or (d), a company transferring all of its assets and liabilities.

Transfers of derivative contracts at notional carrying valueU.K.

684Transfer of derivative contract at notional carrying valueU.K.

(1)This section applies if in the course of the merger a transferor transfers the rights and liabilities under a derivative contract to the transferee.

(2)For the purpose of determining the credits and debits to be brought into account in respect of the derivative contract in accordance with this Part, the transferor and the transferee are treated as having entered into the transfer of those rights and liabilities for consideration of an amount equal to the notional carrying value of the contract.

(3)For the purposes of this section, the notional carrying value of a contract is the amount which would have been [F116its tax-adjusted carrying value based on] the accounts of the transferor if a period of account had ended immediately before the date when the transferor ceased to be a party to the contract.

(4)This section is subject to section 685 (transferor using fair value accounting).

685Transferor using fair value accountingU.K.

(1)This section applies instead of section 684 if, in a case where that section would otherwise apply, the transferor uses fair value accounting as respects the derivative contract.

(2)The amount which is to be brought into account by the transferor in respect of the transfer of the rights and liabilities mentioned in section 684(1) is the fair value of the derivative contract as at the date of transfer to the transferee.

(3)For any accounting period in which the transferee is a party to the derivative contract, for the purpose of determining the credits and debits to be brought into account in respect of the contract in accordance with this Part, the transferee is treated as if it had acquired the contract for consideration of an amount equal to the fair value of the contract as at the date of transfer to it.

Exception for tax avoidance cases and clearancesU.K.

686Tax avoidance etcU.K.

(1)This Chapter does not apply in relation to the merger if—

(a)the merger is not effected for genuine commercial reasons, or

(b)the merger forms part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax.

(2)But subsection (1) does not prevent this Chapter from applying if before the merger—

(a)any of the merging companies has applied to the Commissioners for Her Majesty's Revenue and Customs, and

(b)the Commissioners have notified the merging companies that they are satisfied that subsection will not have that effect.

(3)Sections 678 and 679 have effect in relation to subsection (2) as in relation to section 677(2), taking the references in section 679 to section 677(2)(b) as references to subsection (2)(b) of this section.

Transparent entitiesU.K.