Corporation Tax Act 2009 section 672

Treatment of net gains and losses on disposal of certain embedded derivatives

Section 672 adjusts the chargeable gains calculation when a company disposes of an asset that contains an embedded derivative treated as an exactly tracking contract for differences under the creditor relationship rules.

• When a company disposes of an asset representing a creditor relationship that contains an exactly tracking embedded derivative, the acquisition costs used in the chargeable gains calculation must be adjusted to reflect gains, losses and carrying value changes already recognised through the derivative contract rules.
• If the sum of cumulative gains (G) and carrying value changes (CV) exceeds cumulative losses (L), the allowable acquisition costs are increased by that excess; if losses exceed the sum of gains and carrying value changes, the allowable acquisition costs are reduced accordingly.
• Where the required reduction exceeds the acquisition costs otherwise available, the surplus amount that cannot be deducted is instead added to the disposal proceeds, thereby increasing any chargeable gain or reducing any allowable loss.
• The normal rules that exclude from chargeable gains computations amounts already taxed as income, or that disallow expenditure already relieved against income, do not apply to this disposal — the adjustments made by this section replace those rules.