Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Derivative definition

What does Derivative mean? A derivative is a contract whose value or payoff is derived from an underlying asset, index or reference measure, for example a floating rate of interest, a currency exchange rate, an equity index or a commodity price. In practice, lawyers see derivatives as options, futures, forwards and swaps (including interest rate, currency and commodity derivatives), traded on exchanges or over the counter for hedging, risk management, speculation or arbitrage. The term is descriptive across legal contexts. For regulatory purposes, the UK perimeter classifies derivatives as specified investments under the Financial Services and Markets Act 2000 (Regulated Activities) Order...

Unallowable purpose and RAAR under CTA 2009 Part 7: UK derivatives anti-avoidance, transfer pricing, forex and options

Published by a LexisNexis Tax expert

Practice notes

The general rule

As a broad principle, a company brings into account for corporation tax the Profits and losses that arise on its Derivative contracts by reference to the amounts of profit or loss shown in respect of those Derivatives in the company’s relevant accounts, which are prepared in accordance with generally accepted accounting practice (GAAP). Put another way, GAAP-compliant accounts provide the mechanism by which the presence, quantification and timing of taxable amounts linked to a company’s derivative contracts are determined for corporation tax purposes. This approach is commonly described as ‘tax following the accounts’. The legislative framework for taxing derivative contracts is set out in Part 7 of the Corporation Tax Act 2009 (CTA 2009) (CTA 2009, ss 570–710), and is considered further in Practice Note: Taxation of derivatives—the main rules. There are, nevertheless, several specific situations in which the derivative contracts rules move away from an exclusive reliance on the company’s accounts. One such situation arises where the Anti-avoidance provisions within Part 7 are engaged. In those instances, the rules do not follow the accounting treatment shown in the relevant accounts...

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Web page updated on 22/05/2026

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