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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Derivative contracts: tax avoidance: amounts not fully recognised for accounting purposes: no debits for derecognition

CTA09/S599A addresses the case where, in accordance with generally accepted accounting practice, amounts are not fully recognised in the accounts. In such circumstances the cash flows on a derivative contract will not be recognised in accounts and may escape taxation under the derivative contracts rules.

An act of derecognition may also give rise to a debit in one of the accounting statements in CTA09/S597 - the profit and loss account or income statement, the statement of total recognised gains and losses or statement of changes in equity, or any other statement of items taken into account in computing the company’s profits and losses. In some instances the act of derecognition may result in an amount being debited in the company’s balance sheet.

CTA09/S698A denies a deduction for such a debit where the company is party to tax avoidance arrangements and continues to be party to the derivative contract after its derecognition. This rule operates in the same way as CTA09/S455A in relation to loan relationships (CFM39230).

This guidance applies for periods beginning on or after 6 December 2010. For guidance applying to periods before that date, refer to CFM56110 and CFM56112.