Taxation (International and Other Provisions) Act 2010 section 493

Embedded derivatives

Section 493 ensures that the rules for splitting financial instruments containing embedded derivatives apply correctly within the transfer pricing and related provisions of this part of the Act.

• Where a financial instrument contains an embedded derivative, accounting standards may require it to be split into separate components — a loan relationship and a derivative contract.
• Section 493 imports the definitions from sections 415 and 585 of the Corporation Tax Act 2009, which set out how loan relationships with embedded derivatives are to be treated.
• This means the transfer pricing rules can properly identify and deal with each component — the host loan relationship and the embedded derivative — as separate items.
• Without this provision, the definitions of loan relationship and derivative contract would not function correctly for instruments that are split for accounting purposes.