Derivative contracts—groups: continuity of treatment
Derivative contracts—groups: continuity of treatment

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

  • Derivative contracts—groups: continuity of treatment
  • Continuity of treatment—basic rule
  • Transfers of contracts under insurance business transfers
  • Group—defined
  • Equivalence—one company replacing another
  • Continuity of treatment
  • Transferor company using amortised cost basis of accounting
  • Transferor company using fair value accounting
  • Discounts arising—treatment of transferor

FORTHCOMING CHANGE relating to transfers within an EU group: Finance Bill 2019–20 will contain provisions permitting companies to pay tax in instalments in relation to disposals of assets to companies resident in an EEA State (other than the UK) which would take place on a ‘no gain no loss’ basis if the transferee were UK-resident, either under the reconstruction rule in section 139 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) or under the intra-group transfer rules in TCGA 1992, s 171. This measure will also apply to intra-group transfers of loan relationships, derivative contracts or intangible fixed assets to another company resident in an EEA State. The new rule is in response to a 2019 decision of the UK First-tier Tribunal, see News Analysis: First-Tier Tribunal relies on freedom of establishment to partially disapply UK rules on tax-free intra-group transfers (Gallaher Limited v HMRC). The provisions will apply retrospectively from 11 July 2019 in relation to accounting periods ending after 9 October 2018.

The general position is, broadly, that the derivative contracts regime taxes (ie brings into account for corporation tax purposes) the:

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

  2. debits—broadly, the expenses (not necessarily losses)

that are recognised in determining a company's profit or loss (in respect of its derivative contracts) for an accounting period