Section 387 | Relevant derivative contract credits

(1)This section applies for the purposes of section 385.

(2)An amount is a “relevant derivative contract credit” if—

(a)it is a credit that is (or apart from this Part would be) brought into account for the purposes of corporation tax in respect of a derivative contract under—

(i)Part 3 of CTA 2009 as a result of section 573 of that Act (derivative contracts for purposes of trade), or

(ii)Part 5 of that Act as a result of section 574 of that Act (other derivative contracts),

(b)is not an excluded credit, and

(c)the condition in subsection (4) is met.

(3)A credit is “excluded” for the purposes of subsection (2)(b) if—

(a)it is in respect of an exchange gain (within the meaning of Part 7 of CTA 2009),

(b)it is in respect of the reversal of an impairment loss, or

(c)it is in respect of a risk arising in the ordinary course of a trade (other than a risk arising in the ordinary course of a financial trade) where the derivative contract was entered into wholly for reasons unrelated to the capital structure of the worldwide group (or any member of the worldwide group).

(3A)For the purposes of subsection (3)(c) a credit is in respect of a risk arising in the ordinary course of “a financial trade” only so far as the risk relates to an amount which is or is likely to be—

(a)a tax-interest expense amount, or

(b)a tax-interest income amount,

of the company in any relevant accounting period.

(4)The condition referred to in subsection (2)(c) is that the underlying subject matter of the derivative contract consists only of one or more of the following—

(a)interest rates;

(b)any index determined by reference to income or retail prices;

(c)currency;

(d)an asset or liability representing a loan relationship;

(e)any other underlying subject matter which is—

(i)subordinate in relation to any of the matters mentioned in paragraphs (a) to (d), or

(ii)of small value in comparison with the value of the underlying subject matter as a whole.

(5)For the purposes of this section, whether part of the underlying subject matter of the derivative contract is subordinate or of small value is to be determined by reference to the time when the company enters into or acquires the contract.

(6)In this section “underlying subject matter” has the same meaning as in Part 7 of CTA 2009.