Corporation Tax Act 2009 (c. 4)

Part 7 U.K. Derivative contracts

Modifications etc. (not altering text)

C1 Pt. 7 modified (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 601, 1184(1) (with Sch. 2)

C2 Pt. 7 modified (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 88(1)(2)(7) (with s. 147, Sch. 17)

C3 Pt. 7 modified by 2007 c. 3, s. 809FZZ(8) (as inserted (with effect in accordance with s. 37(4) of the amending Act) by Finance Act 2016 (c. 24), s. 37(2))

Chapter 11 U.K. Tax avoidance

Transactions not at arm's length U.K.

693 Bringing into account adjustments under [F1 Part 4 of TIOPA 2010] U.K.

(1) This section deals with the credits and debits which are to be brought into account in accordance with this Part as a result of [F2 Part 4 of TIOPA 2010] (provision not at arm's length) applying in relation to a company's derivative contracts or related transactions.

(2) Subsection (3) applies if under [F3 Part 4 of TIOPA 2010] an amount (“the imputed amount”) is treated as an amount of profits or losses arising to a company from any of its derivative contracts or related transactions.

(3) Credits or debits relating to the imputed amount are to be brought into account in accordance with this Part to the same extent as they would be in the case of an actual amount of such profits or losses.

(4) Subsection (5) applies if under [F4 Part 4 of TIOPA 2010] an amount is treated as expenses incurred by a company under or for the purposes of any of its derivative contracts or related transactions.

(5) Debits relating to the amount are to be brought into account in accordance with this Part to the same extent as they would be in the case of an actual amount of such expenses.

[F5 (6) No credit is to be brought into account for the purposes of this Part to the extent that it corresponds to an amount which, as a result of the preceding provisions of this section, has not previously been brought into account as a debit.]

Textual Amendments

F1 Words in s. 693 title substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 142(2) (with Sch. 9 paras. 1-9, 22)

F2 Words in s. 693(1) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 142(2) (with Sch. 9 paras. 1-9, 22)

F3 Words in s. 693(2) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 142(2) (with Sch. 9 paras. 1-9, 22)

F4 Words in s. 693(4) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 142(2) (with Sch. 9 paras. 1-9, 22)

F5 S. 693(6) inserted (with effect in accordance with Sch. 7 para. 12 of the amending Act) by Finance Act 2016 (c. 24), Sch. 7 para. 4

694 Exchange gains and losses U.K.

(1) Subsections (2) to (7) apply if—

(a) a company is a party to a derivative contract in an accounting period, and

(b) an exchange gain or exchange loss arises to the company for the accounting period from the contract.

(2) Subsection (3) applies if as a result of [F6 Part 4 of TIOPA 2010] (provision not at arm's length) the company's profits and losses are calculated for tax purposes as if it were not a party to the contract.

(3) Any exchange gains or losses which arise to the company from the contract for the accounting period are left out of account in determining the credits and debits to be brought into account in accordance with this Part.

[F7 (3A) If the contract is to any extent matched, subsection (3) applies to leave out of account only the amount of the exchange gains or losses arising to the company in relation to the contract to the extent that the contract is unmatched (an amount which may be nil).]

(4) Subsection (5) applies if as a result of [F8 Part 4 of TIOPA 2010] the company's profits and losses are calculated for tax purposes as if the terms of the contract were those which would have been agreed by the company and the other party to the contract had they been dealing at arm's length (“the arm's length terms”).

(5) The credits and debits which are to be brought into account in accordance with this Part in the case of the company are to be determined on the assumption that the amount of any exchange gain or loss arising to the company from the contract in the accounting period is the adjusted amount.

(6) In subsection (5), the “adjusted amount” means the amount of an exchange gain or loss which would have arisen from the contract if its terms were the arm's length terms.

(7) That amount may be nil.

[F9 (7A) Subsections (5) to (7) apply only to the extent that the contract is unmatched.]

(8) Nothing in [F10 Part 4 of TIOPA 2010] requires the amounts brought into account in accordance with this Part in respect of exchange gains and losses from derivative contracts to be calculated on the assumption that the arm's length provision had been made instead of the actual provision.

(9) But subsection (8) does not affect the application of—

(a) subsection (3) under subsection (2), or

(b) subsection (5) under subsection (4).

(10) In subsection (8) “the actual provision” and “the arm's length provision” have the same meaning as in [F11 Part 4 of TIOPA 2010 (see sections 149 and 151 of that Act)].

[F12 (11) For the purposes of this section a derivative contract of a company is matched if and to the extent that—

(a) it is in a matching relationship with another derivative contract or loan relationship of the company, or

(b) exchange gains or losses arising in relation to the derivative contract are excluded from being brought into account under regulations under section 606(4)(b),

and “unmatched” is to be construed accordingly.

(12) A derivative contract is in a matching relationship with another derivative contract or loan relationship if one is intended by the company to act to eliminate or substantially reduce the economic risk of the other.

(13) In this section “economic risk” means a risk which can be attributed to fluctuations in exchange rates between currencies over a period of time.

(14) In this section “loan relationship” has the same meaning as in Part 5 (see section 302).]

Textual Amendments

F6 Words in s. 694(2) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 143(2) (with Sch. 9 paras. 1-9, 22)

F7 S. 694(3A) inserted (with effect in accordance with Sch. 7 para. 12 of the amending Act) by Finance Act 2016 (c. 24), Sch. 7 para. 11(2)

F8 Words in s. 694(4) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 143(2) (with Sch. 9 paras. 1-9, 22)

F9 S. 694(7A) inserted (with effect in accordance with Sch. 7 para. 12 of the amending Act) by Finance Act 2016 (c. 24), Sch. 7 para. 11(3)

F10 Words in s. 694(8) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 143(2) (with Sch. 9 paras. 1-9, 22)

F11 Words in s. 694(10) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 143(3) (with Sch. 9 paras. 1-9, 22)

F12 S. 694(11)-(14) inserted (with effect in accordance with Sch. 7 para. 12 of the amending Act) by Finance Act 2016 (c. 24), Sch. 7 para. 11(4)

695 Transfers of value to connected companies U.K.

(1) This section applies if—

(a) a company (“A”) paid an amount (“amount X”) to a company (“B”) for the grant of an option,

(b) there is a failure to exercise in full all the rights under the option,

(c) until the failure the option was a derivative contract of A,

(d) as a result of the failure there is a transfer of value by A to B,

(e) B is a connected company in relation to A, and

(f) B is not chargeable to corporation tax in accordance with this Part in respect of the derivative contract.

(2) A must bring into account a credit of the appropriate amount in respect of the derivative contract for the accounting period in which the option expired or would have expired if none of the rights under it had been exercised.

(3) If the option expired, “the appropriate amount” means amount X.

(4) If any rights under the option were exercised (in whole or in part), “the appropriate amount” means amount X less so much of it as is referable, on a just and reasonable basis, to the rights which have been so exercised.

(5) In determining for the purposes of subsection (1)(d) whether there is a transfer of value, the assumption in subsection (6) is made.

(6) That assumption is that if there had not been a connection between A and B—

(a) all the rights under the option would have been exercised in full, and

(b) all of those rights would have been exercised on the latest date on which they were exercisable.

(7) In this section “option” is to be construed as if section 580(2) and (3) (meaning of “option”) were omitted.

(8) For the purposes of this section, B is a connected company in relation to A in an accounting period if there is a time in the period when—

(a) A controls B,

(b) B controls A, or

(c) A and B are both controlled by the same person.

(9) But A and B are not taken to be controlled by the same person just because they have been under the control of—

[F13 (za) the Crown,]

(a) a Minister of the Crown,

(b) a government department,

(c) a Northern Ireland department,

(d) a foreign sovereign power, or

(e) an international organisation.

(10) Section 472 (meaning of “control”) applies for the purposes of this section.

Textual Amendments

F13 S. 695(9)(za) inserted (1.4.2009 retrospective) by Corporation Tax Act 2009 (Amendment) Order 2009 (S.I. 2009/2860), arts. 1(2), 6(6)

[F14 695A Disguised distribution arrangements involving derivative contracts U.K.

(1) This section applies if—

(a) a company (“A”) is a party to arrangements involving one or more derivative contracts (each of which is referred to in this section as a “specified contract”),

(b) another company (“B”) is also a party to the arrangements (whether or not at the same time as A),

(c) A and B are members of the same group,

(d) the arrangements result in what is, in substance, a payment (directly or indirectly) from A to B of all or a significant part of the profits of the business of A or of a company which is a member of the same group as A or B (or both) (“the profit transfer”), and

(e) the arrangements are not arrangements of a kind which companies carrying on the same kind of business as A would enter into in the ordinary course of that business.

(2) No debits in respect of a specified contract, which—

(a) relate to the profit transfer, and

(b) apart from this section, would be brought into account by A or B for the purposes of this Part,

are to be so brought into account.

(3) Where one or more debits in respect of a specified contract are not brought into account by virtue of subsection (2), credits arising from the same contract which—

(a) relate to the same profit transfer, and

(b) apart from this section, would be brought into account by A or B for the purposes of this Part,

are not to be so brought into account to the extent that the total of those credits does not exceed the total of those debits.

(4) Subsection (3) does not apply to any credit which arises directly or indirectly in consequence of, or otherwise in connection with, arrangements the main purpose of which, or one of the main purposes of which, is the securing of a tax advantage for any person.

(5) For the purposes of this section a company is a member of the same group as another company if it is (or has been) a member of the same group at a time when the arrangements mentioned in subsection (1) have effect.

(6) In this section—

• “arrangements” includes any scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions;

• “group” has the meaning given by section 357GD of CTA 2010;

• “tax advantage” has the meaning given by section 1139 of CTA 2010.]

Textual Amendments

F14 S. 695A inserted (with effect in accordance with s. 29(2)-(6) of the amending Act) by Finance Act 2014 (c. 26), s. 29(1)