Commentary on Sections Overview Chapter 5: Continuity of treatment on transfers within groups Section 625: Group member replacing another as party to derivative contract
1708.This section and the next three deal with the case where one member of a group of companies replaces another as a party to a derivative contract as the result of a related transaction or similar transactions. This section determines the credits and debits to be brought into account by the transferor company and the transferee company. It is based on paragraph 28(1), (3), (3ZA), (3A) and (7) of Schedule 26 to FA 2002.
1709.“Notional carrying value” is defined in subsection (6) on the model of the similar definition in section 622(4). “Carrying value” is defined in section 702.
1710.Should any “discount” arise in respect of the related transaction or the equivalent series of transactions, it is added to the amount treated as consideration by the transferor under subsection (3) (but not to the amount treated as consideration given by the transferee under subsection (4)).
1711.“Discount” is defined in subsection (6) by reference to section 480 in Part 5 (loan relationships). A discount arises if payment of part of the consideration for a disposal is deferred and the consideration is accordingly increased to recognise the delay.
1712.Subsection (7) disapplies Schedule 28AA to ICTA in a case where credits and debits are determined under subsection (2). Schedule 28AA to ICTA might otherwise substitute market value for the amounts agreed between the parties, which amounts would give rise to credits and debits for the purposes of this Part. Such a substitution is unnecessary given that this section requires both parties to use the notional carrying value of the contract rather than amounts shown in the accounts (the amounts “recognised for accounting purposes”).