Corporation Tax Act 2009 section 697

Exceptions to section 696

Section 697 sets out three circumstances in which the anti-avoidance rule in section 696 (concerning derivative contracts with non-UK residents) does not apply.

• The rule does not apply where the UK company is a bank, building society, financial trader, recognised clearing house, recognised CSD or third country central counterparty, and enters into the derivative contract solely for the purposes of its UK trade in its own right (not as agent or nominee).
• The rule does not apply where the non-UK resident party is itself chargeable to UK corporation tax or income tax on income from the derivative contract (or would be if any such income arose), provided it holds the contract in its own right rather than as agent or nominee.
• The rule does not apply where a double taxation agreement exists between the UK and the territory where the non-UK resident is based, and that agreement includes provisions dealing with interest — regardless of whether those provisions grant relief or not.
• For the double taxation agreement exception, if the non-UK resident holds the contract as agent or nominee, the relevant territory is that of the person on whose behalf it acts, not the territory of the non-UK resident itself.