Hedge Accounting Case Study

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Hedge accounting is described in CCCTB article 28. Generally transactions will be measured individually. But if transactions are meant to be taken into account together because fluctuation in their values shows more or less opposite effect it can be accounted as hedge accounting or joint valuation. So gains and losses on a hedged item will be treated the same as the corresponding hedging instrument. In the CCCTB the hedging instrument and hedged item can even be held by different group members. The following conditions should be met to qualify for a hedging relationship: a) The hedging relationship is formally designated and documented in advance b) The hedge is expected to be highly effective and the effectiveness can reliably be measured.…show more content…
By not formally designating a hedge a company gets the opportunity to present a loss on a financial instrument where they do not have to present the corresponding yet because it has not been realized yet. In this way a company is able to shift its taxable profits to the future. Russo is wondering in his article in ‘Selected Issues’ edited by Dennis Weber if this outcome was the intention of the CCCTB WG. This problem has occurred in the Dutch tax system as well. It was decided by the Dutch Supreme Court that hedge accounting can be mandatory even in the cases where the conditions for commercial hedge accounting aren’t met. This would not have been possible in a tax system with a formal link between commercial accounting and tax accounting, such as Germany. The CCCTB directive and Dutch tax system don’t have a formal linkage. The cacao bean judgment is a good example of the influence of IFRS on the Dutch tax system. In this judgment the Supreme Court uses the 80% to 125% coherence norm for applying hedge accounting on financial instruments. This percentage is based on IAS…show more content…
Market maker judgment In the market maker arrest an in the UK based limited entity had bought dividend certificates of Koninklijke Olie from an in Luxembourg based entity. Dividend was claimed during the sale but not yet paid. The UK based entity received dividend later reduced with 25% Dutch dividend tax. Hereafter, the UK based entity asked for a 10% refund, which had been withheld on the basis of the tax treaty between the UK and the Netherlands. The Dutch tax authority refused to pay because they didn’t see the market maker as the final interested party for the dividend. The Dutch Supreme Court designated the UK based entity as entitled party for the dividend. The tax treaty didn’t require the party to be the owner of the underlying shares. Supreme Court decided that moment of declaration wasn’t relevant, but the moment of payment to declare the final interested party of the

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