Corporation Tax Act 2009 section 658

Chargeable gain or allowable loss treated as accruing

Section 658 explains how a chargeable gain or allowable loss is calculated when a debtor relationship containing an embedded derivative comes to an end and the company pays an amount to settle all its obligations under that relationship.

• When a debtor relationship with an embedded derivative ends and an amount is paid to discharge all the company's obligations, a chargeable gain or allowable loss is treated as accruing to the company for corporation tax on chargeable gains purposes
• The gain or loss is calculated by treating the derivative contract as an asset that is disposed of at the point the debtor relationship ends, with the cost of the asset being the discharge amount actually paid
• The deemed disposal proceeds are either the original proceeds of issue of the security (if the company was a party from the outset) or the tax-adjusted carrying value of the host contract at the time the company became a party (if it joined later)
• A transitional rule disapplies this section where the liability representing the debtor relationship was owed by the company immediately before its first accounting period beginning on or after 1 January 2005