The Disregard and Bringing into Account of Profit and Losses on Derivative Contracts Hedging Acquisitions and Disposals of Shares Regulations 2022
| Jurisdiction | UK Non-devolved |
| Citation | SI 2022/239 |
| Year | 2022 |
2022 No. 239
Corporation Tax
Capital Gains Tax
The Disregard and Bringing into Account of Profit and Losses on Derivative Contracts Hedging Acquisitions and Disposals of Shares Regulations 2022
Made 7th March 2022
Laid before the House of Commons 9th March 2022
Coming into force 1st April 2022
The Treasury, in exercise of the powers conferred by sections 598(1) and (4)(b) and 606(4) and (7)(b) of the Corporation Tax Act 20091, make the following Regulations:
Citation, commencement and effect
1.—(1) These Regulations may be cited as the Disregard and Bringing into Account of Profit and Losses on Derivative Contracts Hedging Acquisitions and Disposals of Shares Regulations 2022 and come into force on 1st April 2022.
(2) Regulation 2 has effect in relation to derivative contracts entered into on or after 1st April 2022.
(3) Regulation 3 has effect in relation to disposals made on or after 1st April 2022.
Amendment of the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004
2.—(1) The Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 20042are amended as follows.
(2) In regulation 2(5), for “or expense” substitute “, expense, forecast transaction or firm commitment”.
(3) In regulation 4, after paragraph (4B)3insert—
“
4C This regulation does not apply to amounts in relation to a derivative contract which are excluded amounts under regulation 5ZA.
(4) After regulation 5 insert—
“
Derivatives hedging acquisitions and disposals of shareholdings
5ZA.—(1) For the purposes of sections 598(1)(a) and 606(4) of CTA 2009, any relevant amount arising to a company in relation to a derivative contract is an excluded amount in an accounting period if and to the extent that—
(a)
(a) the underlying subject matter of the contract includes currency, and
(b)
(b) there is a relevant hedging relationship between the derivative contract (or part of the derivative contract) and a forecast transaction or firm commitment (“the hedged item”) relating to the anticipated future acquisition or disposal of a relevant shareholding (“the anticipated transaction”).
(2) There is a relevant hedging relationship if, and to the extent that—
(a)
(a) the contract (or part of the contract) is intended to hedge the economic risk to the company in relation to—
(i) the anticipated acquisition cost, together with any incidental costs of the acquisition, of the anticipated transaction,
(ii) the disposal proceeds of, and any relevant dividend in relation to the relevant shareholding paid as part of, the anticipated transaction, or
(iii) where paragraph (3) applies, the subscription of shares in, or entering into a creditor relationship with, another company for the purpose of financing the anticipated acquisition cost, together with any incidental costs of the acquisition, of the anticipated transaction, and
(b)
(b) the economic risk is attributable to fluctuations in exchange rates between the currency in which the forecast transaction or firm commitment is denominated and the company’s relevant currency or the currency in which the debt or equity financing relating to the anticipated transaction is denominated.
(3) This paragraph applies where the company entering into the hedging relationship has a substantial shareholding in the company making the anticipated acquisition or will have a substantial shareholding in that company before the anticipated acquisition.
(4) In paragraph (1)—
(a)
(a) “relevant amount” means—
(i) where the derivative contract is an option4or a deal contingent forward contract, any profit or loss arising to the company in relation to the derivative contract, and
(ii) in any other case, any exchange gain or loss arising to the company in relation to the derivative contract;
(b)
(b) “relevant shareholding” means—
(i) except where paragraph (ii) applies, a shareholding in another company which is, at the date the derivative contract is entered into, a substantial shareholding, and
(ii) where the company entering into the relevant hedging relationship is a qualifying asset holding company, a holding of qualifying shares within paragraph 53 of Schedule 2 to the Finance Act 20225.
(5) In paragraph (2)(a)(ii), a dividend is a “relevant dividend” if it is exempt from corporation tax under Part 9A of CTA 20096or would be exempt apart from an election under section 931R of CTA 2009.
(6) If there is a hedging relationship between part of the derivative contract and the hedged item, the proportion of the relevant amount in relation to the contract that is an excluded amount must be determined on a just and reasonable basis having regard to the proportion of the contract which is in the relevant hedging relationship.
(7) This regulation does not apply—
(a)
(a) to a derivative contract which is entered into with a person (“A”) to whom the company is connected7unless—
(i) a person who is connected to the company enters into a derivative contract with a person who is not connected with the company, and
(ii) that contract confers rights or imposes liabilities which are equivalent to those of A under the contract which A entered with the company,
(b)
(b) to a derivative contract that meets the accounting condition in section 579(1)(b) of CTA 2009,
(c)
(c) where the anticipated transaction is between connected companies, or
(d)
(d) where the company enters into a hedging relationship as part of a trade that consists of or includes dealing in shares or entering into creditor relationships.
(8) Section 466 of CTA 2009 (companies connected for an accounting period) applies for the purposes of paragraph (7)(c).
(9) In this regulation—
“creditor relationship” has the same meaning as in section 302(5) of CTA 2009;
“deal contingent forward contract” means a...
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