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592 | Embedded derivatives treated as meeting condition in section 591 etc |
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(1) | This section applies if for an accounting period— |
| |
(a) | a company is a party to a hybrid derivative which meets the condition |
| |
in section 579(1)(b) (contract which is or forms part of a financial asset |
| |
or liability for accounting purposes), |
| 5 |
(b) | the embedded derivative is a relevant contract which meets the |
| |
condition in section 579(1)(a) (contract treated for accounting purposes |
| |
| |
(c) | the underlying subject matter of that contract consists, or is treated as |
| |
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(i) | shares in a company, or |
| |
(ii) | rights of a unit holder under a unit trust scheme, and |
| |
(d) | the host contract is or forms part of a financial asset or liability for |
| |
| |
(2) | The embedded derivative is treated— |
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(a) | for the purposes of section 589 (contracts excluded because of |
| |
underlying subject matter: general) as meeting one of the conditions in |
| |
| |
(b) | as a chargeable asset. |
| |
(3) | The host contract is treated for the purposes of the Corporation Tax Acts as if |
| 20 |
it were a creditor relationship of the company (see Part 5 (loan relationships)). |
| |
(4) | Section 590 (disregard of subordinate or small value underlying subject matter) |
| |
applies for the purpose of determining whether the underlying subject matter |
| |
is to be treated as consisting wholly of property mentioned in subsection (1)(c) |
| |
as that section so applies in relation to excluded property. |
| 25 |
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“the embedded derivative” means the relevant contract to which the |
| |
company is treated as a party under section 584(2)(a) because of the |
| |
hybrid derivative mentioned in subsection (1)(a), and |
| |
“the host contract” means the relevant contract to which the company is |
| 30 |
treated as a party under section 584(2)(b) because of that hybrid |
| |
| |
593 | Contracts where part of underlying subject matter is excluded property |
| |
(1) | This section applies to a relevant contract of a company— |
| |
(a) | which is an option or future, |
| 35 |
(b) | which meets any of the accounting conditions in section 579(1), and |
| |
(c) | whose underlying subject matter consists of— |
| |
(i) | excluded property, and |
| |
(ii) | other underlying subject matter. |
| |
(2) | A relevant contract to which this section applies is treated for the purposes of |
| 40 |
the Corporation Tax Acts as if it were the following two contracts— |
| |
(a) | a relevant contract whose underlying subject matter consists of the |
| |
| |
(b) | a relevant contract whose underlying subject matter consists of the |
| |
other underlying subject matter. |
| 45 |
|
| |
|
| |
|
(3) | For the purposes of giving effect to subsection (2), all such apportionments as |
| |
are just and reasonable are to be made. |
| |
(4) | This section does not apply to a relevant contract if it is determined in |
| |
accordance with section 590 (disregard of subordinate or small value |
| |
underlying subject matter) that the underlying subject matter of the relevant |
| 5 |
contract is to be treated as consisting wholly of excluded property. |
| |
(5) | In this section “excluded property” has the same meaning as in section 589 |
| |
(contracts excluded because of underlying subject matter: general). |
| |
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Credits and debits to be brought into account: general |
| 10 |
| |
| |
(1) | This Chapter contains rules of general application about the credits and debits |
| |
to be brought into account for the purposes of this Part. |
| |
| 15 |
(a) | sets out the general principles which are to apply in relation to the |
| |
bringing into account of credits and debits, including the use of |
| |
generally accepted accounting practice and the taking into account of |
| |
related transactions (see sections 595 and 596), |
| |
(b) | makes provision about the interpretation of the expression “amounts |
| 20 |
recognised in determining a company’s profit or loss” (see sections 597 |
| |
| |
(c) | makes provision in relation to the application of fair value accounting |
| |
| |
(d) | sets out some general rules which differ from generally accepted |
| 25 |
accounting practice (see sections 604 and 605), |
| |
(e) | makes provision about exchange gains and losses (see section 606), |
| |
(f) | makes provision about pre-contract or abortive expenses (see section |
| |
| |
(g) | makes provision about companies ceasing to be parties to derivative |
| 30 |
contracts and companies moving abroad (see sections 608 to 610), and |
| |
(h) | makes provision in relation to statutory insolvency arrangements (see |
| |
| |
| |
595 | General principles about the bringing into account of credits and debits |
| 35 |
(1) | This Part operates by reference to the accounts of companies and amounts |
| |
recognised for accounting purposes in those accounts. |
| |
(2) | The general rule is that the amounts to be brought into account by a company |
| |
as credits or debits for any period for the purposes of this Part are those which |
| |
are recognised in determining the company’s profit or loss for the period in |
| 40 |
|
| |
|
| |
|
accordance with generally accepted accounting practice (but this is subject to |
| |
subsections (3) and (4)). |
| |
(3) | The credits and debits to be brought into account in respect of a company’s |
| |
derivative contracts are the amounts which, when taken together, fairly |
| |
represent for the accounting period in question— |
| 5 |
(a) | all profits and losses of the company which arise to it from its derivative |
| |
contracts and related transactions (excluding expenses), and |
| |
(b) | all expenses incurred by the company under or for the purposes of |
| |
those contracts and transactions. |
| |
(4) | Expenses are only treated as incurred as mentioned in subsection (3)(b) if they |
| 10 |
| |
(a) | in bringing any of the derivative contracts into existence, |
| |
(b) | in entering into or giving effect to any of the related transactions, |
| |
(c) | in making payments under any of those contracts or as a result of any |
| |
of those transactions, or |
| 15 |
(d) | in taking steps to ensure the receipt of payments under any of those |
| |
contracts or in accordance with any of those transactions. |
| |
(5) | For the treatment of pre-contract or abortive expenses, see section 607. |
| |
(6) | In subsection (3) “profits and losses” includes profits and losses of a capital |
| |
| 20 |
(7) | This section is subject to the following provisions of this Part. |
| |
(8) | For the meaning of “related transaction” see section 596. |
| |
596 | Meaning of “related transaction” |
| |
(1) | In this Part “related transaction”, in relation to a derivative contract, means any |
| |
disposal or acquisition (in whole or in part) of rights or liabilities under the |
| 25 |
| |
(2) | For this purpose the cases where there is taken to be such a disposal or |
| |
| |
(a) | those where rights or liabilities under the derivative contract are |
| |
transferred or extinguished by any sale, gift, surrender or release, and |
| 30 |
(b) | those where the contract is discharged by performance in accordance |
| |
| |
Amounts recognised in determining a company’s profit or loss |
| |
597 | Amounts recognised in determining a company’s profit or loss |
| |
(1) | References in this Part to an amount recognised in determining a company’s |
| 35 |
profit or loss for a period are to an amount recognised in— |
| |
(a) | the company’s profit and loss account, income statement or statement |
| |
of comprehensive income for that period, |
| |
(b) | the company’s statement of total recognised gains and losses, |
| |
statement of recognised income and expense, statement of changes in |
| 40 |
equity or statement of income and retained earnings for that period, or |
| |
(c) | any other statement of items recognised in calculating the company’s |
| |
profits and losses for that period. |
| |
|
| |
|
| |
|
(2) | If, in accordance with generally accepted accounting practice, an amount is |
| |
shown as a prior period adjustment in any statement within subsection (1), it |
| |
must be brought into account for the purposes of this Part in calculating the |
| |
company’s profits and losses for the period to which the statement relates. |
| |
(3) | Subsection (2) does not apply to an amount recognised for accounting |
| 5 |
purposes by way of correction of a fundamental error. |
| |
598 | Regulations about recognised amounts |
| |
(1) | The Treasury may by regulations make provision— |
| |
(a) | excluding amounts of a specified description from section 597(1) |
| |
(amounts recognised in determining a company’s profit or loss), |
| 10 |
(b) | requiring amounts of a specified description which are not within |
| |
section 597(1) to be brought into account in determining a company’s |
| |
profit or loss for a period in specified circumstances, and |
| |
(c) | as to the way in which any such amounts are to be brought into |
| |
| 15 |
(2) | For the purposes of subsection (1)(b), it does not matter whether the amounts |
| |
are not within section 597(1) because of regulations under subsection (1)(a) or |
| |
| |
(3) | The regulations may (in particular) make provision by reference to the fact that |
| |
amounts derive from or otherwise relate to amounts brought into account in a |
| 20 |
specified way in a previous period of account. |
| |
| |
(a) | make different provision for different cases, and |
| |
(b) | make provision subject to an election or to other specified conditions. |
| |
(5) | The regulations may apply, exclude or modify any of the provisions of this Part |
| 25 |
in relation to cases for which provision is made by the regulations. |
| |
(6) | The regulations may apply to periods of account beginning before they are |
| |
made, but not earlier than the beginning of the calendar year in which they are |
| |
| |
599 | Meaning of “amounts recognised for accounting purposes” |
| 30 |
| |
(a) | draws up accounts which are not GAAP-compliant accounts, or |
| |
(b) | does not draw up accounts at all, |
| |
| this Part applies as if GAAP-compliant accounts had been drawn up. |
| |
(2) | Accordingly, references in this Part to amounts recognised for accounting |
| 35 |
purposes include references to the amounts which would have been |
| |
recognised if GAAP-compliant accounts had been drawn up for the period of |
| |
account in question and any relevant earlier period. |
| |
(3) | For this purpose a period of account is relevant to a later period if the accounts |
| |
for the later period rely to any extent on amounts derived from the earlier |
| 40 |
| |
(4) | In this section “GAAP-compliant accounts” means accounts drawn up in |
| |
accordance with generally accepted accounting practice. |
| |
|
| |
|