Taxation (International and Other Provisions) Act 2010 section 420

Derivative contracts subject to fair value accounting

Section 420 adjusts how derivative contracts recognised at fair value in a worldwide group's financial statements are treated for the purposes of calculating group-interest and group-EBITDA under the corporate interest restriction rules.

• Fair value movements on certain hedging derivative contracts are stripped out of the group's financial statements for the purposes of the interest restriction calculations
• The Disregard Regulations determine which derivative contract amounts are excluded — broadly, those forming part of an intended hedge
• Replacement amounts calculated under the Disregard Regulations are instead treated as if they were recognised in the group's financial statements, aligning recognition with the hedged item
• Where a replacement amount spans periods outside the relevant period of account, or periods when the company was not a group member, the amount is reduced on a just and reasonable basis (potentially to nil)