Commentary

D1.892 Option to acquire shares which is bifurcated from a debtor loan relationship

Corporate tax
Corporate tax | Commentary

D1.892 Option to acquire shares which is bifurcated from a debtor loan relationship

Corporate tax | Commentary

D1.892 Option to acquire shares which is bifurcated from a debtor loan relationship

Where a debtor loan relationship which carries rights to acquire shares by conversion or exchange is bifurcated into a host contract and an embedded derivative in the issuer's accounts, and the embedded derivative is treated as an option or would be so treated but for the fact that it only provides for cash settlement1, any profits or losses arising on the embedded option are disregarded in computing the issuer's profits or losses for the purposes of the derivative contracts legislation2. Instead, where the company became a party to the debtor loan relationship on or after the start of its first period of account beginning after 31 December 2004, the initial carrying value of the option for the purposes of the derivative contracts legislation is taken into account in computing its chargeable gains or allowable losses for the accounting period in which the option is exercised or expires unexercised3. Where the company became a party to the debtor loan relationship in an earlier accounting period and the exclusions set out below do not apply, any profits or losses arising on the embedded derivative are totally disregarded for tax purposes4.

Any profit or loss arising on the embedded option is not ignored in computing a company's profits and losses for the purposes of the derivative contracts legislation where:

  1.  

    (a)     at the

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