Derivative contracts—anti-avoidance: counteracting avoidance arrangements
Derivative contracts—anti-avoidance: counteracting avoidance arrangements

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Derivative contracts—anti-avoidance: counteracting avoidance arrangements
  • Derivative contracts regime targeted anti-avoidance rule—justification and objective
  • Counteracting avoidance arrangements—the regime TAAR
  • Relevant avoidance arrangements—defined
  • Derivative-related tax advantage—defined
  • Relevant avoidance arrangements—exception
  • Relevant avoidance arrangements—indicative list

The general rule is that:

  1. the credits (broadly, but not necessarily, profits), and

  2. debits (broadly, but not necessarily, losses)

arising to a company from its derivative contracts and related transactions, that are to be brought into account for tax purposes under the derivative contracts regime, are computed in accordance with those recognised in determining a company's profit or loss (as disclosed in the company's relevant accounts) for an accounting period in accordance with generally accepted accounting practice (GAAP)—ie the tax will generally follow the accounts.

For more on the basic computational rules that permeate the derivative contracts regime, and its general, close, reliance on GAAP, see Practice Note: Derivative contracts—computation of debits and credits.

There are, however, a number of specific circumstances where the tax rules will necessarily depart from this basic reliance on the company's accounting treatment—ie the derivative contracts regime incorporates specific statutory rules that will override the accounting treatment in particular situations.

The provisions in the derivative contracts regime that override the accounting treatment are, therefore, included primarily to ensure that a company's derivative transactions are taxed appropriately in accordance with the economic reality. They are also needed to ensure that companies are unable to avoid tax by artificially manipulating circumstances to obtain a specific type of accounting treatment and thereby some form of tax advantage.

Since, however:

  1. it is not possible for