Section 645 — Corporation Tax Act 2009: Creditor relationships: embedded derivatives which are options

Creditor relationships: embedded derivatives which are options 645 1 This section applies to a derivative contract of a company for an accounting period if each of conditions A to E is met.

2 Condition A is that the derivative contract is a relevant contract to which the company is treated as a party under section 585(2) (loan relationships with embedded derivatives) because of a creditor relationship of the company.

3 Condition B is that the derivative contract is treated as an option by section 585(3) (contract treated as option, future or contract for differences).

4 Condition C is that the underlying subject matter of the derivative contract—

a is qualifying ordinary shares, or b is mandatorily convertible preference shares.

5 Condition D is that the company is not a party to the creditor relationship at any time in the accounting period for the purposes of a trade carried on by it.

6 Condition E is that the company is not an excluded body.

7 Where this section applies to a derivative contract, the asset representing the creditor relationship is treated for corporation tax purposes as not being a qualifying corporate bond.

8 See also—

a section 647 (meaning of certain expressions in this section),

and b section 670 (treatment of net gains and losses on exercise of option).