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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Derivative contracts: tax avoidance: unallowable purposes: overview

Derivative contracts for unallowable purposes

The unallowable purposes rule for loan relationships at CTA09/S441 and S442 has equivalent rules for derivative contracts at CTA09/S690 and S691.

S690 applies for an accounting period if, during that period, a derivative contract of the company has an ‘unallowable purpose’.

If the rule applies, debits and exchange credits arising from the derivative contract for that period are disregarded. They are disregarded only to the extent that on a just and reasonable apportionment the debits and credits are referable to the unallowable purpose.

A credit is an ‘exchange credit’ in so far as it is attributable to any exchange gains arising to the company which are included as taxable credits (CFM51100).

S690(5) ensures that amounts disregarded under S690 are not capable of being brought into account in any other way, for example, as a normal trading expense of the company.