»Ê¹ÚÌåÓýapp

‘Directly or indirectly replaces�

As with loan relationships, the group neutrality provision extends to the case where, rather than the transferee company directly replacing the transferor as party to the contract, it enters into a new but ‘equivalent� contract with the counterparty.

With derivative contracts, indirect replacement will be the norm rather than the exception, since derivatives are almost always transferred by a process of novation. In legal terms, the existing parties to the contract (the transferor company and the counterparty) terminate their contract, in consideration of which the counterparty enters into a new contract with the transferee company.

Under CTA09/S627 the rights and liabilities under the new contract must be equivalent to those under the old contract. Unlike the corresponding loan relationships provision (CTA09/S338), CTA09/S627 puts no gloss on the meaning of ‘equivalent�.

»Ê¹ÚÌåÓýapp ‘equivalenceâ€� requirement was considered in a First Tier Tax Tribunal Decision, HBOS Treasury Services Plc (now HBOS Treasury Services Ltd) v HMRC Commissioners [2009] UKFTT 261, TC208. HMRC staff should seek advice from CTIAA (Financial Products Team) where there is doubt about whether old and new contracts are equivalent.

»Ê¹ÚÌåÓýapp group continuity rule was amended by FA 2003 to make it clear that it applies to novations. »Ê¹ÚÌåÓýapp amendment applies to transfers occurring on or after 9 April 2003. HMRC’s view is that the rule as originally enacted, applied to novations. If it is claimed that that the rule does not apply to a transfer before 9 April 2003 because a novation was involved, HMRC staff should consult CTIAA (Financial Products Team).