Corporation Tax Act 2009 section 415

Loan relationships with embedded derivatives

Section 415 deals with how a company should separately account for a loan relationship that contains an embedded derivative or equity instrument, splitting it into a host contract and the embedded element.

• Where accounting standards (GAAP) require a company to split a loan relationship into a host contract and one or more embedded derivatives or equity instruments, this section applies
• The company is treated for corporation tax purposes as being a party only to the host contract — that is, the straightforward loan relationship element
• The embedded derivative or equity instrument rights and liabilities are dealt with separately under section 585, which falls within Part 7 (derivative contracts) of the Act
• This treatment ensures that the tax rules mirror the accounting separation required by GAAP, so each component is taxed under the appropriate regime