Words in reg. 2(1) inserted (with effect in accordance with Sch. 20 para. 10(b) of the amending Act) by Finance Act 2019 (c. 1), Sch. 20 para. 9(2)(a)

161

Words in reg. 2(1) omitted (with effect in accordance with Sch. 20 para. 10(b) of the amending Act) by virtue of Finance Act 2019 (c. 1), Sch. 20 para. 9(2)(b)

162

Words in reg. 3(5)(c) substituted (with effect in accordance with Sch. 20 para. 10(b) of the amending Act) by Finance Act 2019 (c. 1), Sch. 20 para. 9(3)

163

Words in reg. 4(4A)(c) substituted (with effect in accordance with Sch. 20 para. 10(b) of the amending Act) by Finance Act 2019 (c. 1), Sch. 20 para. 9(4)

164

Words in reg. 6A(5)(b) inserted (with effect in accordance with Sch. 6 para. 11 of the amending Act) by Finance Act 2020 (c. 14), Sch. 6 para. 8(a)

165

Reg. 6A(6) inserted (with effect in accordance with Sch. 6 para. 11 of the amending Act) by Finance Act 2020 (c. 14), Sch. 6 para. 8(b)

166

Reg. 5ZA inserted (1.4.2022 with effect in accordance with reg. 1(2) of the amending S.I.) by The Disregard and Bringing into Account of Profit and Losses on Derivative Contracts Hedging Acquisitions and Disposals of Shares Regulations 2022 (S.I. 2022/239), regs. 1(1), 2(4)

167

Words in reg. 2(5) substituted (1.4.2022 with effect in accordance with reg. 1(2) of the amending S.I.) by The Disregard and Bringing into Account of Profit and Losses on Derivative Contracts Hedging Acquisitions and Disposals of Shares Regulations 2022 (S.I. 2022/239), regs. 1(1), 2(2)

168

Reg. 4(4C) inserted (1.4.2022 with effect in accordance with reg. 1(2) of the amending S.I.) by The Disregard and Bringing into Account of Profit and Losses on Derivative Contracts Hedging Acquisitions and Disposals of Shares Regulations 2022 (S.I. 2022/239), regs. 1(1), 2(3)

169

Words in reg. 7(5) inserted (1.4.2022 with effect in accordance with reg. 1(2) of the amending S.I.) by The Disregard and Bringing into Account of Profit and Losses on Derivative Contracts Hedging Acquisitions and Disposals of Shares Regulations 2022 (S.I. 2022/239), regs. 1(1), 2(5)(a)

170

Words in reg. 7(5) substituted (1.4.2022 with effect in accordance with reg. 1(2) of the amending S.I.) by The Disregard and Bringing into Account of Profit and Losses on Derivative Contracts Hedging Acquisitions and Disposals of Shares Regulations 2022 (S.I. 2022/239), regs. 1(1), 2(5)(b)

171

Reg. 7A(7A) inserted (1.4.2022 with effect in accordance with reg. 1(2) of the amending S.I.) by The Disregard and Bringing into Account of Profit and Losses on Derivative Contracts Hedging Acquisitions and Disposals of Shares Regulations 2022 (S.I. 2022/239), regs. 1(1), 2(6)

Profits and losses arising from loan relationships with embedded derivatives

11

(1) For the purposes of section 310(1) of CTA 2009 (amounts recognised in determining company’s profits and loss) the amounts described in paragraph (2) are prescribed in relation to a company which is party to a creditor relationship to which—

(a) either—

(i) section 92 (convertible securities etc: creditor relationships), or

(ii) section 93 (relationships linked to the value of chargeable assets),

of the Finance Act 1996 applied immediately before the start of the first accounting period of the company to begin on or after 1st January 2005, and

(b) section 94A of the Finance Act 1996 (loan relationships with embedded derivatives) applies in the first accounting period of the company to begin on or after 1st January 2005.

(1A) Where paragraph (1) does not apply, for the purposes of section 310(1) of CTA 2009 the amounts described in paragraph (3) are prescribed in relation to a company which is party to a creditor relationship to which—

(a) section 92, or

(b) section 93,

of the Finance Act 1996 applies immediately before the start of the first accounting period of the company to begin on or after 1st January 2005.

(2) The prescribed amounts are all credits and debits in respect of the host contract save for—

(a) credits in relation to interest accruing in respect of the creditor relationship without regard to the amounts given by the effective interest method; and

(b) where paragraph (1)(a)(i) applies, credits and debits in respect of exchange gains and losses.

(3) The prescribed amounts are all credits and debits save for—

(a) credits in relation to interest, and

(b) where paragraph (1A)(a) applies, credits and debits in respect of exchange gains and losses.

(4) Where there is a change of accounting policy in drawing up a company’s accounts from one period of account to the next affecting the amounts to be brought into account for accounting purposes in respect of the company’s loan relationships, the amounts prescribed in paragraphs (1) to (3) that would otherwise be brought into account for the purposes of Part 5 of the Corporation Tax 2009 shall not be brought into account.

12

(1) For the purposes of section 310(1) of CTA 2009 the amounts described in paragraph (2) are prescribed in relation to a company which is party to a debtor relationship to which—

(a) either—

(i) section 92A (convertible securities etc: debtor relationships), or

(ii) section 93,

of the Finance Act 1996 applies immediately before the start of the first accounting period of the company to begin on or after 1st January 2005, and

(b) section 94A of the Finance Act 1996 applies in the first accounting period of the company to begin on or after 1st January 2005.

This is subject to paragraph (4).

(1A) Where paragraph (1) does not apply, for the purposes of section 310(1) of CTA 2009 the amounts described in paragraph (2A) are prescribed in relation to a company which is party to a debtor relationship to which—

(a) section 92A, or

(b) section 93,

of the Finance Act 1996 applies immediately before the start of the first accounting period of the company to begin on or after 1st January 2005.

This is subject to paragraph (4).

(2) The prescribed amounts are—

(a) where paragraph (1)(a)(i) applies, debits to the extent that they are within section 92A(3) of the Finance Act 1996;

(b) where paragraph (1)(a)(ii) applies, all debits and credits in respect of the host contract save for debits in relation to interest accruing in respect of the debtor relationship without regard to the amounts given by the effective interest method.

(2A) The prescribed amounts are—

(a) where paragraph (1A)(a) applies, debits to the extent that they are within section 92A(3) of the Finance Act 1996;

(b) where paragraph (1A)(b) applies, all debits and credits in respect of the host contract save for debits in relation to interest.

(3) Where there is a change of accounting policy in drawing up a company’s accounts from one period of account to the next affecting the amounts to be brought into account for accounting purposes in respect of the company’s loan relationships, the amounts prescribed in paragraphs (1) and (2) that would otherwise be brought into account for the purposes of Part 5 of the Corporation Tax 2009 shall not be brought into account.

(4) This regulation does not apply to a company which is a party to a debtor relationship in a case where—

(a) the company is carrying on a banking business or a business consisting wholly or partly in dealing in securities, and

(b) it entered into the debtor relationship in the ordinary course of that business.

Relevant value

4A

(1) For the purposes of regulations 3(7) and 4(5), “relevant value” means—

(a) in relation to shares held by the company in another company (“Company A”), where the company elects, the higher of—

(i) the net asset value underlying the shares in Company A, and

(ii) the value shown in the accounts of the company; and

(b) in any other case, the value shown in the accounts of the company.

(2) In paragraph (1)(a)(i) the net asset value underlying the shares in Company A is an amount equal to—

(a) the value of the assets, less

(b) the value of the liabilities

of Company A and any direct or indirect subsidiary of Company A denominated in the relevant currency.

This is subject to paragraph (6).

(3) The value of assets and liabilities referred to in paragraph (2) is the value at the relevant time shown in—

(a) a balance sheet of Company A, or

(b) where Company A has a direct or indirect subsidiary, a notional consolidated balance sheet of Company A prepared in the relevant currency.

(4) For the purposes of paragraph (3) in determining whether an asset or liability would be recognised in the balance sheet or notional consolidated balance sheet and, if so recognised the value that would be accorded to it, regard shall be had to the accounting treatment of the asset or liability—

(a) in any consolidated accounts prepared by the company, or

(b) where the company does not prepare consolidated accounts, in any consolidated accounts prepared by a company that directly or indirectly controls the company.

(5) Nothing in paragraphs (3) or (4) shall prevent an asset or liability, which might be eliminated in the preparation of any consolidated accounts, from being taken into account in paragraph (2).

(6) If the company does not directly hold the entire issued share capital in Company A, the net asset value underlying the shares in Company A shall be reduced by such amount as is just and reasonable having regard to—

(a) the proportion of the issued shares held by the company, and

(b) where there is more than one class of share, the rights attached to the shares held by the company.

(7) An election under paragraph (1)—

(a) must be made by the company by notice in writing to an officer of Revenue and Customs, and

(b) must specify the review period.

(7A) An election—

(a) applies to all the shareholdings held by the company which are matched in accordance with regulation 3(3)(b) or 4(3)(b), and

(b) has effect from a date specified in the notice which must be later than the date the notice is given.

(7B) An election may be amended or revoked by notice in writing to an officer of Revenue and Customs—

(a) before the election has effect, or

(b) with effect from a date specified in the notice which must be—

(i) later than the date the notice is given, and

(ii) at least 12 months after the election was made.

(7C) Where the date specified in a notice under paragraph (7) or (7B) is not the first day of an accounting period so much of the period as falls before that date and so much of the period as falls on or after that date are treated as separate accounting periods.

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

(8A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9) In this regulation—

“relevant currency” means the currency which, as a result of exchange rate fluctuations, gives rise to the economic risk referred to in regulations 3(3) and 4(3);

“control” has the meaning given in section 1124 of CTA 2010.

Regulations 3 and 4: supplementary

Rules about fair value profits and losses

Fair value profits or losses arising from derivative contracts which are currency contracts

Profits or losses arising from derivative contracts which are interest rate contracts

9A

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

Bringing fair value profits or losses into account on currency and commodity contracts

Profits and losses arising from loan relationships with embedded derivatives

Relevant time

4B

(1) For the purposes of regulations 3(4), 4(4) and 4A(“relevant time” is determined as follows.

(2) In a case within regulation 4A(1)(a) (relevant value determined by net asset value) the relevant time is the start of each review period in an accounting period.

(3) In a case within regulation 4A(1)(b) (relevant value determined by accounts value), the relevant time is the time when the liability or contract is entered into or, if later, when the asset is acquired.

Review period

4C

(1) For the purposes of regulations 4A(7)(b) and 4B(2), a review period is a period, or one of a series of successive periods, of a length specified by a company making an election in accordance with regulation 4A(1)(a).

This is subject to the provisions of this regulation.

(2) A review period, or where more than one in an accounting period the first review period in that accounting period, begins on the first day of the accounting period or, if later, the date that a liability or derivative contract first becomes matched with shares in accordance with regulation 3(3)(b) or 4(3)(b).

(3) A review period, or where more than one in an accounting period the last review period in that accounting period, must end on the last day of the accounting period.

(4) If a company has matched shares in accordance with regulation 3(3)(b) or 4(3)(b) (“the first asset”), the first review period in relation to shares which are subsequently matched—

(a) begins when the subsequent matching occurs, and

(b) ends at the same time as the review period which is current in relation to the first asset when the subsequent matching occurs.

(5) If during a review period (“the current period”) there is a significant variation in the net asset value underlying shares which have been matched in accordance with regulation 3(3)(b) or 4(3)(b), there shall be a new review period in relation to those shares which—

(a) begins on the day that any variation in the net asset value becomes a significant variation, and

(b) ends at the same time as the current period.

(6) In paragraph (5) “significant variation” means an increase or decrease of 10% or more in the net asset value underlying the matched shares.

(7) In this regulation the net asset value underlying shares shall be determined in accordance with regulation 4A(2).

Regulations 3 and 4: supplementary

Rules about fair value profits and losses

Fair value profits or losses arising from derivative contracts which are currency contracts

Profits or losses arising from derivative contracts which are commodity contracts or debt contracts

Bringing fair value profits or losses into account on currency and commodity contracts

Profits and losses arising from loan relationships with embedded derivatives

Exchange gains or losses arising from derivative contracts hedging anticipated or future proceeds from certain issues of shares

7A

(1) For the purposes of section 598(1)(a) of the Corporation Tax Act 2009, an exchange gain or loss arising to a company is an excluded amount in an accounting period in relation to a derivative contract if—

(a) the underlying subject matter of the contract consists wholly of currency; and

(b) there is a relevant hedging relationship within the meaning of paragraph (2).

(2) There is a relevant hedging relationship between a derivative contract (or part of a derivative contract) and the anticipated or future proceeds of an announced or proposed rights issue or open offer of shares (“relevant share issue”) if, and to the extent that—

(a) the contract (or part of the contract) is intended to hedge the economic risk to future capital raised under the relevant share issue (“the hedged item”); and

(b) the economic risk is attributable to fluctuations in exchange rates between the currency in which the relevant share issue is denominated and the company’s functional currency.

(3) If there is a hedging relationship between part of a currency contract and a hedged item, the part of the fair value profit or loss that is an excluded amount is the part which bears to the whole the proportion which the value of that part of the contract which is in the hedging relationship bears to the value of the whole contract

(4) Paragraph (1) shall not apply to a derivative contract which is entered into with a person (“person A”) to whom the company is connected unless—

(a) a person who is connected to the company enters into a derivative contract with a person who is not connected with the company; and

(b) that contract confers rights or imposes liabilities which are equivalent to those of A under the contract which A entered with the company.

(5) Section 466 of the Corporation Tax Act 2009 (companies connected for an accounting period) applies for the purposes of paragraph (4).

(6) A derivative contract to which this regulation applies may act as a hedge of the anticipated or future proceeds from a relevant share issue only to the extent that the value of the obligation under the derivative contract (within the meaning of regulation 4(5)) does not exceed the anticipated or future proceeds from the relevant share issue which, but for the derivative contract, would not be hedged.

(7) Subsections (3) and (4) of section 606 of the Corporation Tax Act 2009 do not apply to any exchange gain or loss which is an excluded amount by virtue of paragraph (1).

(7A) This regulation does not apply to amounts in relation to a derivative contract which are excluded amounts under regulation 5ZA.

(8) In this regulation—

(a) “functional currency”, in relation to a company, means the currency of the primary economic environment in which the company operates; and

(b) “rights issue or open offer of shares” means an offer or invitation to existing shareholders to subscribe for or purchase further shares in proportion to (or as nearly as may be in proportion to) their current holdings.

Profits or losses arising from derivative contracts which are interest rate contracts

Bringing fair value profits or losses into account on currency and commodity contracts

Bringing exchange gains into account on contracts to which regulation 7A applies

10A

(1) For the purposes of section 598(1)(c) of the Corporation Tax Act 2009 there is an amount to be brought into account which is equivalent to the amount of any exchange gain specified in paragraph (2).

(2) The exchange gain specified is any exchange gain—

(a) arising to a company in relation to a derivative contract to which regulation 7A applies or applied, and

(b) which has been distributed to the shareholders of the company.

(3) The amount to be brought into account by paragraph (1) is to be brought into account for the accounting period in which the distribution is made.

Profits and losses arising from loan relationships with embedded derivatives

Transitional provision: exchange losses arising from contracts to which regulation 7A applies

13

(1) This regulation applies to a derivative contract to which regulation 7A applies—

(a) which was entered into on or after 1st January 2009;

(b) which formed part of a relevant hedging relationship (within the meaning of regulation 7A) up to and including 10th March 2009; and

(c) in respect of which an exchange loss would have arisen to the company had an accounting period ended on 9th March 2009.

(2) For the purposes of section 598(1)(c) of the Corporation Tax Act 2009 the amount to be brought into account is the lower of—

(a) the exchange loss arising to the company which is incurred on the termination of the derivative contract; or

(b) the exchange loss which would have arisen to the company in relation to the derivative contract had an accounting period ended on 9th March 2009.

(3) Paragraph (4) applies if there is more than one derivative contract to which regulation 7A applies in relation to the same hedged item.

(4) The total amount of the exchange loss in relation to those contracts which is to be brought into account under this regulation shall not exceed the aggregate net exchange losses (if any) which—

(a) arose to the company on the termination of those contracts, or

(b) would have arisen to the company in relation to those contracts had an accounting period ended on 9 March 2009.

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