Corporation Tax Act 2010 section 1013

Exception to section 1012

Section 1013 sets out the conditions under which hedging arrangements will not prevent section 1008 (the distribution treatment for securities issued at a premium exceeding the principal) from applying, effectively overriding the section 1012 exclusion.

• Where a company has hedging arrangements relating to its liabilities under a security, section 1008 can still apply if four conditions (A to D) are all met at the relevant time and have been met continuously since 17 April 2002 whenever such arrangements were in place.
• The hedging arrangements must not be part of a tax avoidance scheme (Condition A), must produce offsetting amounts that arise at or around the time of the related corporation tax deduction and arise to the issuing company or a fellow group member (Condition B), must result in those amounts being fully charged to corporation tax (Condition C), and must not involve disproportionate administration costs relative to the taxable amounts (Condition D).
• If any of the four conditions ceases to be met at any point, section 1012 takes effect from that point onwards and continues to apply even if all four conditions are subsequently satisfied again.
• For these purposes, "tax" includes stamp duty and stamp duty land tax, and group membership is determined in accordance with the Part 5 group relief rules (section 152).