Corporation Tax Act 2009 section 622

Contracts ceasing to be derivative contracts

Section 622 deals with the tax consequences when a contract that a company holds ceases to qualify as a derivative contract.

• When a contract stops being a derivative contract, the company is treated as having disposed of it at that point in time
• The deemed disposal proceeds equal the notional carrying value of the contract — the tax-adjusted carrying value that would have appeared in the company's accounts if a period of account had ended immediately before the contract ceased to be a derivative
• A taxable credit or debit may arise from this deemed disposal, in addition to any credits or debits already recognised while the contract was still a derivative contract during the same accounting period
• Once the contract is no longer a derivative contract, it is likely to become a chargeable asset for capital gains purposes, and section 662 sets out the acquisition cost to be used for that purpose