Taxation (International and Other Provisions) Act 2010

[F1Fair value accountingU.K.

456Creditor relationships of companies determined on basis of fair value accountingU.K.

(1)A company may elect for all of its creditor relationships which are dealt with on the basis of fair value accounting (“fair-value creditor relationships”) to be subject to the provision made by this section for all of its accounting periods.

(2)For the purpose of calculating under this Part—

(a)tax-interest expense amounts of the company, and

(b)tax-interest income amounts of the company,

the relevant loan relationship debits and relevant loan relationship credits in respect of the company's fair-value creditor relationships are instead to be determined for the accounting periods on an amortised cost basis of accounting.

(3)If—

(a)a company has a hedging relationship between a relevant contract (“the hedging instrument”) and the asset representing a loan relationship subject to the election, and

(b)the loan relationship is dealt with in the company's accounts on the basis of fair value accounting,

it is to be assumed in applying the amortised cost basis of accounting that the hedging instrument has where possible been designated for accounting purposes as a fair value hedge of the loan relationship.

(4)An election under this section—

(a)must be made before the end of 12 months from the end of the relevant accounting period,

(b)has effect for that accounting period and all subsequent accounting periods, and

(c)is irrevocable.

(5)For this purpose “relevant accounting period” means—

(a)the first accounting period in which the company has a fair-value creditor relationship, or

(b)if that accounting period has ended before 1 April 2017, the first accounting period in relation to which any provision of this Part applies.

(6)In this section “amortised cost basis of accounting”, in relation to an accounting period, has the same meaning as in Part 5 of CTA 2009 (see section 313), but, in the case of creditor relationships relating to insurance activities, as if that basis of accounting required recognition only of—

(a)interest accrued for the period in respect of the creditor relationships, or

(b)if the creditor relationships arise as a result of section 490 of CTA 2009 (OEICs, unit trusts and offshore funds), amounts that can reasonably be regarded as equating to interest accrued for the period in respect of those relationships.

(7)In subsection (6) “creditor relationships relating to insurance activities” means creditor relationships which—

(a)are held by an insurance company, a friendly society within the meaning of Part 3 of FA 2012 (see section 172) or a body corporate which carries on underwriting business as a member of Lloyd's, or

(b)are held in connection with the regulation of underwriting business carried on by members of Lloyd's.

(8)The Commissioners may by regulations amend the definition of “amortised cost basis of accounting” in this section.

(9)Other expressions which are used in this section and in Part 5 of CTA 2009 have the same meaning in this section as they have in that Part.

457Elections under section 456: deemed debits and creditsU.K.

(1)This section applies if—

(a)as a result of an election under section 456, the tax-interest expense amounts of a company include notional debits for an accounting period,

(b)the worldwide group of which the company is a member is subject to interest restrictions for a period of account, and

(c)the total disallowed amount for the period of account consists of or includes the notional debits.

(2)In order to facilitate the operation of Chapter 2 (disallowance and reactivation of tax-interest expense amounts)—

(a)the company must bring a debit equal to the amount of the notional debits into account in the accounting period, and

(b)the company must bring a credit equal to the amount of the notional debits into account in the accounting period,

but nothing in this subsection affects any calculation required under any other provision of this Part in relation to the accounting period of the company.

(3)The bringing into account of a debit under subsection (2)(a) is subject to the operation of the other provisions of this Part (which may result in some or all of the debit not being brought into account).

(4)The debits and credits under subsection (2) are of the same nature as the notional debits that give rise to them.

(5)For the purposes of this section a debit is a “notional debit” if the debit is created as a result of the determination required by the election or so far as the amount of the debit is increased as a result of that determination.]