Corporation Tax Act 2009 section 588

Associated transaction treated as derivative contract

Section 588 deals with certain transactions associated with non-qualifying shares, treating them as derivative contracts for corporation tax purposes even when they are not technically derivative contracts in law.

• Where a company holds shares that are treated as a loan relationship because of the "associated transactions condition," any associated transaction is deemed to be a derivative contract for tax purposes
• A share is "non-qualifying" when it forms part of a scheme or arrangement that, together with one or more associated transactions, is designed to produce a return equivalent to a commercial rate of interest
• An "associated transaction" includes entering into, or acquiring rights under, a derivative contract or similar contract, or a contract of insurance or indemnity
• Where an associated transaction is treated as a derivative contract under this section, the resulting credits and debits must be calculated using fair value accounting under section 603