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HMRC internal manual

Corporate Finance Manual

Derivative contracts: group continuity: fair value accounting

Transferor uses mark-to-market or fair value accounting

Many intra-group transfers of derivatives will be at fair value, and there will be no difference between the accounting and the tax treatment.

However, where the transferor company uses fair value accounting for the derivative contract (or, for periods beginning before 1 January 2005, an authorised mark-to-market basis of accounting for the derivative contract), the transferee company must bring the derivative contract into account at its fair value at the date on which the contract was transferred to it, regardless of whether it accounts for the contract on a fair value or amortised cost basis. CTA09/S628 applies instead of CTA09/S625, which requires the derivative contract to be brought into account by the transferee at the same fair value. The rule thus imposes fair value even if the actual transfer price differs.

The rule was amended in FA 2003 for transfers on or after 9 April 2003 to ensure that there is no ‘gap’ between the value at which the transferor company is treated as disposing of the contract, and the value at which the transferee is treated as acquiring it.