Corporation Tax Act 2009 section 631

Transferee leaving group otherwise than because of exempt distribution

Section 631 deals with the tax consequences for derivative contracts when a company that received a derivative contract from a fellow group member subsequently leaves that group, other than as a result of a tax-exempt demerger distribution.

• When a company that acquired a derivative contract within a group later leaves that group (for reasons other than an exempt demerger distribution), a deemed disposal and reacquisition of the derivative contract is triggered
• The company is treated as having assigned its rights and liabilities under the derivative contract immediately before leaving the group, at their fair value at that time
• The company is then treated as having immediately reacquired those same rights and liabilities for the same fair value amount
• This mechanism crystallises any built-in gain or loss on the derivative contract at the point of the company's departure from the group