Section 421 | Derivative contracts subject to fair value accounting: interpretation ^F1

(1)In section 420 “the relevant assumptions” means the following assumptions—^F1

(a)that all members of the group are within the charge to corporation tax;^F1

(b)that elections under regulation 6A of the Disregard Regulations have effect in relation to each derivative contract of each member of the group;^F1

(c)that paragraph (5) of regulation 7 of the Disregard Regulations is of no effect;^F1

(d)that where—^F1

(i)a member of the group (“member A”) holds a derivative contract,^F1

(ii)the group has a hedging relationship between that derivative contract (on the one hand), and an asset, liability, receipt or expense (on the other), and^F1

(iii)the asset, liability, receipt or expense is held, or is expected to be received or incurred, by a member of the group other than member A,^F1

the asset, liability, receipt or expense is held, or is expected to be received or incurred, by member A;

(e)that the financial statements of members of the group deal with derivative contracts and hedged items in the same way as they are dealt with in the group's financial statements.^F1

(2)For the purposes of subsection (1)(d) the group has a “hedging relationship” between a derivative contract (on the one hand) and an asset, liability, receipt or expense (on the other) if, were those things held, received or incurred by a single company, the company would have a hedging relationship between them.^F1

(3)Regulation 2(5) of the Disregard Regulations (hedging relationships of a company) applies for the purposes of this section.^F1

(4)For the purposes of section 420 and this section—^F1

(a)“the Disregard Regulations” means the Loan Relationship and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004 (S.I. 2004/3256);^F1

(b)the following are “relevant provisions” of the Disregard Regulations—^F1

(i)regulation 7 (fair value profits or losses arising from derivative contracts which are currency contracts);^F1

(ii)regulation 8 (profits or losses arising from derivative contracts which are commodity contracts or debt contracts);^F1

(iii)regulation 9 (profits or losses arising from derivative contracts which are interest rate contracts).^F1