Section 591 — Corporation Tax Act 2009: Conditions A to E mentioned in section 589(5)

Conditions A to E mentioned in section 589(5) 591 1 The following are the conditions mentioned in section 589(5).

2 Condition A is that the relevant contract—

a is a plain vanilla contract entered into or acquired by a company carrying on long-term business , b is an approved derivative for the purposes of Rule 3.2.5 of the Prudential Sourcebook for Insurers (within the meaning given by section 139(4) of FA 2012) , and c does not meet the condition in section 579(1)(b) (contract which is or forms part of a financial asset or liability for accounting purposes).

3 Condition B is that—

a the relevant contract is entered into or acquired by a company otherwise than for the purposes of a trade carried on by it, b there is a hedging relationship between the contract and—

i an asset of the company which consists of shares or rights of a unit holder under a unit trust scheme, or ii any share capital of the company or any liability related to share capital of the company, and c the relevant contract is not one to which the company is treated as a party under section 585(2) (loan relationships with embedded derivatives).

4 Condition C is that—

a the relevant contract is entered into or acquired by a company otherwise than for the purposes of a trade carried on by it, and b the relevant contract is an option which is listed on a recognised stock exchange to subscribe for shares in a company.

5 Condition D is that—

a the relevant contract is entered into or acquired by a company otherwise than in the course of activities forming an integral part of a trade carried on by it, b the relevant contract is—

i an option to acquire shares in a company, or ii a future requiring delivery of shares in a company, c the relevant contract is not one to which the company is treated as a party under section 585(2),

and d the shares to be acquired or delivered—

i constitute a substantial shareholding within the meaning of paragraph 8 of Schedule 7AC to TCGA 1992 (meaning of “substantial shareholding”), or ii would do so if acquired or delivered.

6 Condition E is that—

a the company which is a party to the relevant contract has a hedging relationship between—

i the relevant contract, and ii an asset or liability representing a loan relationship which is treated as mentioned in section 585(1) (loan relationships with embedded derivatives),

and b each relevant contract to which the company is treated as a party under section 585(2) in the case of that loan relationship is a derivative contract to which any of the provisions in subsection (7) applies.

7 The provisions mentioned in subsection (6)(b) are—

a section 645 (creditor relationships: embedded derivatives which are options),

b section 648 (creditor relationships: embedded derivatives which are exactly tracking contracts for differences),

c sections 653 to 655 (issuers of securities with embedded derivatives: deemed options),

and d section 658 (issuers of securities with embedded derivatives: deemed contracts for differences).

8 For the cases in which sections 653 to 655 and section 658 apply, see sections 652 and 656 respectively.