Part 7Derivative contracts
Chapter 7Chargeable gains arising in relation to derivative contracts
Issuers of securities with embedded derivatives: deemed contracts for differences
656Introduction to section 658
(1)
Section 658 (chargeable gain or allowable loss treated as accruing) applies to a derivative contract of a company for an accounting period if each of conditions A to F is met.
(2)
Condition A is that the derivative contract is a relevant contract to which the company is treated as a party under section 585(2) (loan relationships with embedded derivatives) because of a debtor relationship of the company.
(3)
Condition B is that the derivative contract—
(a)
is treated as a contract for differences by section 585(3) (contract treated as option, future or contract for differences), and
(b)
is not within section 652.
(4)
Condition C is that the derivative contract is an exactly tracking contract.
(5)
Condition D is that the underlying subject matter of the derivative contract is shares.
(6)
Condition E is that at the time when the company became a party to the debtor relationship—
(a)
it was not carrying on a banking business or a business as a securities house, or
(b)
if it was carrying on such a business, it did not become a party to the debtor relationship in the ordinary course of that business.
(7)
Condition F is that the company is not an excluded body.
(8)
For the meaning of “exactly tracking contract”, see section 657.