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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Derivative contracts: tax avoidance: amounts not fully recognised for accounting purposes: conditions A to C

This guidance applies for accounting periods beginning before 6 December 2010

Conditions A to C

CFM56110 describes the anti-avoidance rule that applies for periods beginning on or after 22 April 2009. Because further avoidance schemes were devised in which a derivative contract is not fully recognised as a consequence of its cash flows being matched with those arising on other financial instruments, this rule was amended for periods ending on or after 22 June 2010, in respect of amounts relating to any time after that date. Accordingly, for periods beginning before 6 December 2010, the rule applies where either condition A, B, or C is met.

Condition A

Condition A is where a derivative contract is derecognised as a result of its cash flows being matched with a capital contribution, and applies to periods of account ending on or after 22 April 2009, in respect of amounts in respect of amounts relating to any time after 22 April 2009.

Condition B

Condition B is where a derivative contract is derecognised as a result of its cash flows being matched with securities forming part of the company’s capital, and applies to periods of account ending on or after 22 April 2009, in respect of amounts in respect of amounts relating to any time after 22 April 2009.

Condition C

Condition C is where a derivative contract is derecognised as a result of its cash flows being matched with an interest in another company’s shares, or a partnership’s profits or capital, or a trust capital contribution, and applies for periods ending on or after 22 June 2010, in respect of amounts in respect of amounts relating to any time after 22 June 2009.

Periods beginning on or after 6 December 2010

For periods beginning on or after 6 December 2010, the derecognition rule was amended so that it applies as a generic rule wherever a company is party to tax avoidance arrangements. See CFM56114.