Taxation (International and Other Provisions) Act 2010 section 46

Applying section 44(2): asset in hedging relationship with derivative contract

Section 46 supplements the double taxation credit rules in section 44 where a foreign income-producing asset is in a hedging relationship with a derivative contract.

• Where an asset is hedged by a derivative contract, the foreign income from the asset is treated as the combined income from both the asset and the derivative taken together, for the purposes of calculating the double taxation credit under section 44(2).
• Only the portion of the derivative contract's income or loss that is reasonably attributable to the hedging relationship is taken into account in this combined calculation.
• A hedging relationship exists where either the asset was acquired to hedge risk connected with the derivative contract, or the derivative contract was entered into to hedge risk connected with the asset.
• If an asset or contract is wholly or partly designated as a hedge in a person's accounts, that designation is conclusive evidence that a hedging relationship exists for the purposes of this section.