The Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) (Amendment) Regulations 2006

Amendment of earlier Regulations

2.  In the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2006(1), for regulation 5 there shall be substituted—

“Disallowance of certain losses arising on derivative contracts

5.— (1) This regulation applies if there is an arrangement where conditions A to D are met.

(2) Condition A is that a company is party to two or more derivative contracts under the arrangement to hedge a currency risk.

(3) Condition B is that those derivative contracts are intended, when taken together, to act as a hedge of that currency risk.

(4) Condition C is that the arrangements are such that—

(a) if a profit arises on at least one of those derivative contracts, that profit would fall within paragraph 16(3) of Schedule 26 to the Finance Act 2002(2), and

(b) if a loss arises on at least one of those derivative contracts, that loss would not fall within paragraph 16(3) of Schedule 26 to the Finance Act 2002.

(5) Condition D is that a loss to which paragraph (4)(b) applies arises under a derivative contract which is an option.

(6) The amount of the loss arising on the derivative contract mentioned in paragraph (5) is not to be recognised in determining the company’s profit or loss for any period.”

(1)

S.I. 2006/843.

(2)

Paragraph 16(3) of Schedule 26 was substituted by paragraph 48(2) of Schedule 10 to the Finance Act 2004.