Section 496 — Corporation Tax Act 2009: Meaning of “hedging relationship”

Meaning of “hedging relationship” 496 1 For the purposes of section 494, in relation to an open-ended investment company, a unit trust scheme or an offshore fund, there is a hedging relationship between a derivative contract (“the hedging instrument”) and an asset (“the hedged item”) so far as condition A or B is met.

2 Condition A is that the hedging instrument and the hedged item are designated as a hedge by the company, scheme or fund.

3 Condition B is that the hedging instrument is intended to act as a hedge of exposure to changes in fair value of a hedged item which is—

a a recognised asset which could affect the total net return of the company, scheme or fund, or b an identified part of such an asset which is attributable to a particular risk.

4 For the purposes of subsection (3) “the total net return” of a company, scheme or fund means its total net return calculated—

a in accordance with generally accepted accounting practice, or b in the case of accounts prepared in a jurisdiction outside the United Kingdom, in accordance with generally accepted accounting practice in that jurisdiction.