Finance Act 2002 (c. 23)

SCHEDULES

SCHEDULE 26 U.K. Derivative contracts

Modifications etc. (not altering text)

C1 Sch. 26 modified by 1996 c. 8, s. 86(3C) (as inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by 2002 c. 23, s. 82, Sch. 25 Pt. 1 para. 6(3))

C2 Sch. 26 extended (retrospective to 30.9.2002) by Finance Act 2003 (c. 14), s. 177(4)(8)(11)

C3 Sch. 26 applied by 1988 c. 1, s. 440(2B) (as amended (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 70)

C4 Sch. 26 modified by 1996 c. 8, s. 94A (as inserted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 13)

C5 Sch. 26 applied (with modifications) (5.10.2004) by Energy Act 2004 (c. 20), s. 198(2), Sch. 9 para. 24 (with s. 38(2)); S.I. 2004/2575, art. 2(1), Sch. 1

C6 Sch. 26 applied (with modifications) (5.10.2004) by Energy Act 2004 (c. 20), s. 198(2), Sch. 9 para. 12 (with s. 38(2)); S.I. 2004/2575, art. 2(1), Sch. 1

Part 3 U.K. Method of taxation

Method of bringing amounts into account U.K.

14 (1) For the purposes of corporation tax the profits and losses arising from the derivative contracts of a company shall be computed in accordance with this paragraph using the credits and debits given for the accounting period in question by the following provisions of this Schedule.

(2) To the extent that, in any accounting period, a derivative contract of a company is one to which the company is party for the purposes of a trade carried on by it, the credits and debits given in respect of that contract for that period shall be treated (according to whether they are credits or debits) either—

(a) as receipts of that trade falling to be brought into account in computing the profits of that trade for that period; or

(b) as expenses of that trade which are deductible in computing those profits.

(3) Where for any accounting period there are, in respect of the derivative contracts of a company, credits and debits that are not brought into account under sub-paragraph (2), they shall be brought into account for that accounting period as if they were non-trading credits or non-trading debits falling to be brought into account for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 (c. 8) in respect of loan relationships of the company.

(4) Sub-paragraph (2), so far as it provides for any amount to be deductible as mentioned in paragraph (b) of that sub-paragraph, shall have effect notwithstanding anything in section 74 of the Taxes Act 1988 (allowable deductions).

Credits and debits brought into account U.K.

15 (1) The credits and debits to be brought into account in the case of any company in respect of its derivative contracts shall be the sums which, F1 ... when taken together, fairly represent, for the accounting period in question—

(a) all profits and losses of the company which (disregarding any charges or expenses) arise to the company from its derivative contracts and related transactions; and

(b) all charges and expenses incurred by the company under or for the purposes of its derivative contracts and related transactions.

F2 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F3 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) The reference in sub-paragraph (1)(b) to charges and expenses incurred for the purposes of a company’s derivative contracts and related transactions does not include a reference to any charges or expenses other than those incurred directly—

(a) in bringing any of those contracts into existence;

(b) in entering into or giving effect to any of those transactions;

(c) in making payments under any of those contracts or in pursuance of any of those transactions; or

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

(5) Where—

(a) any charges or expenses are incurred by a company for purposes connected—

(i) with entering into a derivative contract or related transaction, or

(ii) with giving effect to any obligation that might arise under a derivative contract or related transaction,

(b) at the time when the charges or expenses are incurred, the contract or transaction is one into which the company may enter but has not entered, and

(c) if that contract or transaction had been entered into by that company, the charges or expenses would be charges or expenses incurred as mentioned in sub-paragraph (4),

those charges or expenses shall be treated for the purposes of this Schedule as charges or expenses in relation to which debits may be brought into account in accordance with sub-paragraph (1)(b) to the same extent as if the contract or transaction had been entered into.

F4 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(8) The cases where there shall be taken for the purposes of sub-paragraph (7) to be a disposal or acquisition of rights or liabilities under a derivative contract shall include—

(a) those where such rights or liabilities 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.

(9) This paragraph has effect subject to [F5 the following provisions of this Schedule].

Textual Amendments

F1 Words in Sch. 26 para. 15(1) repealed (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 47(2), Sch. 42 Pt. 2(6)

F2 Sch. 26 para. 15(2) repealed (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 47(3), Sch. 42 Pt. 2(6)

F3 Sch. 26 para. 15(3) repealed (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 47(3), Sch. 42 Pt. 2(6)

F4 Sch. 26 para. 15(6) repealed (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 47(3), Sch. 42 Pt. 2(6)

F5 Words in Sch. 26 para. 15(9) substituted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 47(4)

Exchange gains and losses arising from derivative contracts U.K.

16 (1) The reference in paragraph 15(1)(a) to the profits and losses arising to a company from its derivative contracts and related transactions includes a reference to exchange gains and losses arising to the company from its derivative contracts.

(2) Sub-paragraph (1) is subject to the following provisions of this paragraph.

[F6 (3) Sub-paragraph (1) does not apply to an exchange gain or loss of a company to the extent that it—

(a) arises in relation to a derivative contract whose underlying subject matter consists wholly or partly of currency, or

(b) results from the translation from one currency to another of the profit or loss of part of the company’s business,

and is recognised in the company’s statement of recognised gains and losses or statement of changes in equity.

(3A) Sub-paragraph (1) above does not apply to so much of an exchange gain or loss arising to a company, in relation to a derivative contract whose underlying subject matter consists wholly or partly of currency, as falls within a description prescribed for the purpose in regulations made by the Treasury.]

F7 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F7 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F7 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F7 (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) The Treasury may by regulations make provision for or in connection with bringing into account in prescribed circumstances amounts in relation to which sub-paragraph (1) does not, by virtue of sub-paragraph (3) [F8 or (3A)], have effect.

(9) The reference in sub-paragraph (8) to bringing amounts into account is a reference to bringing amounts into account—

(a) for the purposes of this Schedule, as credits or debits arising to a company from its derivative contracts and related transactions; or

(b) for the purposes of the Taxation of Chargeable Gains Act 1992 (c. 12).

(10) Any power to make regulations under this paragraph includes power to make different provision for different cases [F9 and power to make provision subject to an election or to other prescribed conditions].

Textual Amendments

F6 Sch. 26 para. 16(3)(3A) substituted for Sch. 26 para. 16(3) (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 48(2)

F7 Sch. 26 para. 16(4)-(7) repealed (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 48(3), Sch. 42 Pt. 2(6)

F8 Words in Sch. 26 para. 16(8) inserted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 48(4)

F9 Words in Sch. 26 para. 16(10) added (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 48(5)