Taxation (International and Other Provisions) Act 2010 section 387

Relevant derivative contract credits

Section 387 defines which credits arising from derivative contracts count as "relevant derivative contract credits" for the purpose of calculating a company's tax-interest income amounts under the corporate interest restriction rules.

• A relevant derivative contract credit is a credit brought into account for corporation tax under the derivative contracts rules, provided it is not excluded and the derivative's underlying subject matter relates to interest rates, price indices, currency, or loan relationships.
• Credits are excluded if they relate to foreign exchange gains, reversals of impairment losses, or hedging of ordinary commercial (non-financial) trading risks where the derivative was entered into for reasons wholly unrelated to the group's capital structure.
• A credit hedging a risk from a financial trade is only treated as relating to a financial trade to the extent the risk concerns amounts that are, or are likely to be, tax-interest expense or tax-interest income amounts of the company.
• Whether any additional underlying subject matter of the derivative is subordinate or of small value is judged at the time the company enters into or acquires the contract.