Corporation Tax Act 2009 section 496

Meaning of "hedging relationship"

Section 496 defines what constitutes a "hedging relationship" between a derivative contract and an asset for the purposes of determining qualifying investments held by open-ended investment companies, unit trust schemes, and offshore funds.

• A hedging relationship exists where a derivative contract (the hedging instrument) and an asset (the hedged item) are formally designated as a hedge by the company, scheme, or fund
• Alternatively, a hedging relationship exists where the derivative is intended to hedge exposure to changes in the fair value of a recognised asset that could affect the entity's total net return
• The hedge may relate to the whole asset or to an identified part of the asset attributable to a particular risk
• The total net return is calculated in accordance with generally accepted accounting practice, or, for accounts prepared outside the United Kingdom, in accordance with the accounting practice accepted in that jurisdiction