Under a "gilt lock" hedge, the taxpayer, between the time of deciding to issue eurobonds and the time of actually issuing them, hedged against the change in price of the bonds in order to lock in its effective interest cost. For accounting purposes, it was permitted to amortize the payment made or received under such hedge over the term of the borrowing as an adjustment to the interest rate cost.
After stating that "the hedge follows the underlying transaction which...is to fix an interest rate to a particular bond that will be issued in the near future," the Directorate found that this accounting treatment also was appropriate for tax purposes.