(1)Subsection (2) applies if—
(a)the debtor relationship mentioned in section 656(2) comes to an end, and
(b)an amount (“the discharge amount”) is paid to discharge all the company’s obligations under that relationship.
(2)For the purposes of corporation tax on chargeable gains, a chargeable gain or allowable loss equal to the amount mentioned in subsection (3) is treated as accruing to the company.
(3)That amount is the amount of the gain or loss (as the case may be) which would accrue on the assumptions in subsection (4).
(4)Those assumptions are that—
(a)the derivative contract is an asset of the company,
(b)there is a disposal of that asset at the time when the debtor relationship comes to an end,
(c)the consideration for the disposal of that asset is equal to the relevant amount, and
(d)the cost of the asset is equal to the discharge amount.
(5)In subsection (4) “the relevant amount” means—
(a)if the company was a party to the debtor relationship at the time it was created, the amount of the proceeds of issue of the security representing that relationship, or
(b)if the company became a party to the debtor relationship after that time, the amount of the carrying value of the host contract at that time.
(6)In this section “the host contract” means the loan relationship to which the company is treated as a party under section 415(2) (loan relationships with embedded derivatives) because of the debtor relationship.