Taxation (International and Other Provisions) Act 2010 section 421

Derivative contracts subject to fair value accounting: interpretation

Section 421 provides the definitions and assumptions needed to apply section 420's rules on derivative contracts subject to fair value accounting, including what the "relevant assumptions" are, when a group has a "hedging relationship", and what the "Disregard Regulations" means.

• When calculating adjustments for derivative contracts under section 420, you must assume that all group members are within the charge to corporation tax, that elections under Regulation 6A of the Disregard Regulations apply to every derivative contract of every group member, and that Regulation 7(5) of the Disregard Regulations has no effect.
• Where one group member holds a derivative contract that hedges an asset, liability, receipt or expense held or expected by a different group member, you must assume that the hedged item belongs to the member holding the derivative — effectively treating the group as a single entity for hedging purposes.
• A group has a "hedging relationship" between a derivative contract and an asset, liability, receipt or expense if a single company holding all of those items would have a hedging relationship between them, applying the definition set out in Regulation 2(5) of the Disregard Regulations.
• The "Disregard Regulations" are the Loan Relationship and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004 (SI 2004/3256), and the "relevant provisions" are Regulations 7, 8, and 9, covering currency contracts, commodity or debt contracts, and interest rate contracts respectively.