Commentary

D1.862A Risk transfer schemes

Corporate tax
Corporate tax | Commentary

D1.862A Risk transfer schemes

Corporate tax | Commentary

D1.862A Risk transfer schemes

Anti-avoidance measures were introduced by FA 20101 to counter so called over hedging arrangements or risk transfer schemes using loan relationships or derivative contracts. These were arrangements used by groups to hedge exchange exposure arising on shares and other assets, where the hedge was normally entered into by a company (swap company) other than the company that owned the shares or other asset (asset holding company). Such arrangements were sometimes used where it was not possible for the asset owning company to enter into the cross currency swap or forward contract itself (where the asset holding company was a party to the cross currency swap or forward contract the exchange movements would normally be treated as matched under the measures that are discussed in D1.863). In other cases groups used such techniques in order to try to make a profit; typically this applied where a cross currency swap was involved as the swap company received a higher periodic net payment as a result of the interest differential between the two currencies covered by the swap contract, whilst knowing that the group was insulated from risk of loss on an after tax basis (assuming that the group had sufficient tax capacity to relieve exchange losses arising on the swap contract).

Where a cross currency swap was used as a hedge the swap company would enter into a cross currency swap and the currency that it was required to re-deliver on the maturity of the swap would be the

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