Corporation Tax Act 2009

Transactions with non-UK residents U.K.

696 Derivative contracts with non-UK residents U.K.

(1) This section applies in relation to a company (“A”) if, as a result of any transaction—

(a) A becomes a party to a derivative contract to which a non-UK resident (“NR”) is a party,

(b) NR becomes a party to a derivative contract to which A is a party, or

(c) A and NR both become a party to a derivative contract.

(2) For each accounting period for any part of which A and NR are both a party to a derivative contract which makes provision for notional interest payments, the credits and debits which fall to be brought into account in accordance with this Part in respect of the contract in the case of A do not include the amount of any excluded debit in relation to that contract.

(3) The amount of an excluded debit is calculated by determining for the accounting period the amount (if any) by which—

(a) the sum of any notional interest payments made by A to NR while A and NR are both a party to the contract,

exceeds

(b) the sum of any notional interest payments made by NR to A during that time.

(4) For the purposes of this section, a payment is a notional interest payment if—

(a) a derivative contract specifies—

(i) a notional principal amount,

(ii) a period, and

(iii) a rate of interest,

(b) the amount of the payment is determined (wholly or mainly) by applying a rate to the specified notional principal amount for the specified period, and

(c) the value of the rate is the same at all times as that of the specified rate of interest.

(5) This section is subject to section 697.

697 Exceptions to section 696 U.K.

(1) Section 696 does not apply if A—

(a) is a bank, building society, financial trader [F1 , recognised clearing house, [F2 recognised CSD]F3 ... or third country central counterparty],

(b) is a party to the derivative contract solely for the purposes of a trade or part of a trade it carries on in the United Kingdom, and

(c) is a party to it otherwise than as agent or nominee of another person.

[F4 (2) Section 696 does not apply if NR—

(a) is chargeable to corporation tax or income tax in respect of income arising from the derivative contract (or would be if there were any such income), and

(b) is a party to the derivative contract otherwise than as agent or nominee of another person.]

(3) Section 696 does not apply if arrangements made in relation to the territory in which NR is resident—

(a) have effect [F5 under section 2(1) of TIOPA 2010] (double taxation relief), and

(b) make provision in relation to interest (as defined in the arrangements).

(4) It does not matter whether the provision mentioned in subsection (3)(b) is for relief or otherwise.

(5) If NR is a party to the contract as agent or nominee of another person, subsection (3) applies as if the reference to the territory in which NR is resident were a reference to the territory in which that other person is resident.

(6) In this section—

• [F6 “recognised clearing house”, [F7 “recognised CSD”]F8 ... and “third country central counterparty” have the meanings given by section 285 of FISMA 2000 (exemptions for recognised [F9 bodies])].

• F10 ...

Textual Amendments

F1 Words in s. 697(1)(a) substituted (1.4.2013) by The Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013 (S.I. 2013/504), regs. 1(2), 26(2)(a) (with regs. 52-58)

F2 Words in s. 697(1)(a) inserted (28.11.2017) by The Central Securities Depositories Regulations 2017 (S.I. 2017/1064), reg. 1, Sch. para. 14(a) (with regs. 7(4), 9(1))

F3 Words in s. 697(1)(a) omitted (31.12.2020) by virtue of The Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/710), regs. 1(3), 5(a); 2020 c. 1, Sch. 5 para. 1(1)

F4 S. 697(2) substituted (6.4.2020) by Finance Act 2019 (c. 1), Sch. 5 paras. 21(2), 35 (with Sch. 5 para. 36)

F5 Words in s. 697(3)(a) 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. 93 (with Sch. 9 paras. 1-9, 22)

F6 Words in s. 697(6) substituted (1.4.2013) by The Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013 (S.I. 2013/504), regs. 1(2), 26(2)(b) (with regs. 52-58)

F7 Words in s. 697(6) inserted (28.11.2017) by The Central Securities Depositories Regulations 2017 (S.I. 2017/1064), reg. 1, Sch. para. 14(b)(i) (with regs. 7(4), 9(1))

F8 Words in s. 697(6) omitted (31.12.2020) by virtue of The Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/710), regs. 1(3), 5(b); 2020 c. 1, Sch. 5 para. 1(1)

F9 Word in s. 697(6) substituted (28.11.2017) by The Central Securities Depositories Regulations 2017 (S.I. 2017/1064), reg. 1, Sch. para. 14(b)(ii) (with regs. 7(4), 9(1))

F10 Words in s. 697(6) omitted (6.4.2020) by virtue of Finance Act 2019 (c. 1), Sch. 5 paras. 21(3), 35 (with Sch. 5 para. 36)