After paragraph 45L insert—

“Treatment of host contract as a loan relationship45M.

(1)

This paragraph applies where—

(a)

a company is treated under paragraph 2(4) as party to a derivative contract,

(b)

that contract is (within the meaning of paragraph 3(3)) treated for accounting purposes as a derivative financial instrument, and

(c)

the underlying subject matter of that contract consists, or is treated as consisting, wholly of—

(i)

shares in a company, or

(ii)

rights of a unit holder under a unit trust scheme.

(2)

Where this paragraph applies—

(a)

the host contract shall be treated for the purposes of the Corporation Tax Acts as if it were a creditor relationship of the company which is a zero coupon bond, and

(b)

the derivative contract shall be treated as satisfying the conditions in paragraph 4(2A).

(3)

For the purposes of this paragraph a “zero coupon bond” is a security—

(a)

whose issue price is less than the amount payable on redemption, and

(b)

which does not provide for any amount to be payable by way of interest.

(4)

Paragraph 9 applies for the purpose of determining whether the underlying subject matter is to be treated as consisting wholly of property referred to in sub-paragraph (1)(c).”.