Interest restriction: group-interest: derivative contracts: application of the disregard regulations
In calculating the amounts of group-interest and group-EBITDA any amounts of fair value movements arising on derivative contracts that have a hedging function are to be removed. Instead, the amounts from those derivative contracts should be recognised in line with the hedged item.
So in particular, for the purposes of calculating these amounts:
- Excluded derivative contract amounts are to be left out of the group-EBITDA calculation. These are the amounts recognised in the group’s financial statements in respect of derivative contracts that would be excluded under regulations 7, 8 and 9 of the Disregard Regulations (SI2004/3256).
- Replacement derivative contract amounts are to be included in the group-EBITDA calculation. These are the amounts that would be brought into account in respect of those derivative contract under regulations 9 and 10 of the Disregard Regulations.
In applying regulations 7, 8, 9 and 10 of the Disregard Regulations the following assumptions are made:
- All members of the group are within the charge to corporation tax.
- Elections under regulation 6A of the Disregard Regulations have effect in relation to each derivative contract of each member of the group
- Paragraph (5) of regulation 7 of the Disregard Regulations has no effect.
- Where a derivative contract taken out by one group company is hedging a risk arising in another group company, the derivative and the hedged item are treated as being in the company that has taken out the derivative.
- The financial statements of the company holding the derivative deal with the derivative contract and the hedged item in the same way as they are dealt with in the group’s financial statements.