Finance Act 2009

Derivative contracts

6 (1) Section 606 is amended as follows

(2) In subsection (3), for paragraph (a) (together with the “and” at the end) substitute—

“(a) condition A or B is met, and”.

(3) In subsection (4), for the words from “so much” to “currency as” substitute “an exchange gain or loss of a company so far as—

(a) condition A is met, and

(b) it”.

(4) After that subsection insert—

“(4A) Condition A is that the exchange gain or loss arises in relation to a derivative contract whose underlying subject matter consists wholly or partly of currency.

(4B) Condition B is that the exchange gain or loss arises as a result of the translation from one currency to another of the profit or loss of part of the company’s business.

(4C) Subsection (4D) applies where—

(a) condition A is met, and

(b) the amount that is recognised in respect of the exchange gain or loss as mentioned in subsection (3)(b) (“the recognised gain or loss”) is not calculated by reference to spot rates of exchange.

(4D) Where this subsection applies—

(a) the recognised gain or loss is to be treated for the purposes of this Part as comprising two separate exchange gains or losses, namely—

(i) an exchange gain or loss calculated by reference to spot rates of exchange, and

(ii) a residual exchange gain or loss, and

(b) subsections (3) and (4) do not have effect in relation to the residual exchange gain or loss.”

(5) After subsection (4D) (inserted by sub-paragraph (4) above) insert—

“(4E) Subsections (3) and (4) do not have effect to disapply subsection (1) in the case of an exchange gain arising in an accounting period of a company so far as—

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

(b) the derivative contract is part of arrangements that have a one-way exchange effect in relation to the company in the accounting period (see section 606A), and

(c) the arrangements cause the company or any other company to gain a tax advantage (other than a negligible tax advantage).”