Taxation (International and Other Provisions) Act 2010 section 384

Relevant derivative contract debits

Section 384 defines which debits arising from derivative contracts count as "relevant derivative contract debits" for the purpose of calculating a company's tax-interest expense amounts under the corporate interest restriction rules.

• A derivative contract debit is "relevant" if it relates to a derivative contract whose underlying subject matter consists solely of interest rates, inflation indices, currency, or loan relationship assets/liabilities (with minor exceptions for subordinate or small-value elements)
• Certain debits are excluded: those relating to foreign exchange losses, impairment losses, or risks arising in the ordinary course of a non-financial trade where the derivative was entered into wholly for reasons unrelated to the group's capital structure
• The exclusion for ordinary trading risks does not apply to financial trades, except to the extent the risk relates to amounts that are or are likely to be tax-interest expense or tax-interest income amounts
• Whether any part of the underlying subject matter of the derivative is subordinate or of small value is assessed at the time the company enters into or acquires the contract

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