The Resource Subpart F : hedging currency risk in a branch context
Subpart F : hedging currency risk in a branch context
Resource Information
The item Subpart F : hedging currency risk in a branch context represents a specific, individual, material embodiment of a distinct intellectual or artistic creation found in International Bureau of Fiscal Documentation.This item is available to borrow from 1 library branch.
Resource Information
The item Subpart F : hedging currency risk in a branch context represents a specific, individual, material embodiment of a distinct intellectual or artistic creation found in International Bureau of Fiscal Documentation.
This item is available to borrow from 1 library branch.
- Summary
- When a CFC enters into a derivative transaction to hedge a currency exposure arising from its operations, any gain on the derivative transaction can give rise to foreign personal holding company income (FPHCI) under Subpart F unless the business needs hedging exception is applicable. The task of sustaining the application of the business needs hedging exception can become complex if the underlying currency exposure arises in a branch or a subsidiary disregarded for tax purposes (DE). This article argues, as an interpretive matter, that currency fluctuations risk of a CFC arising from the operations of its branch or DE is not limited for purposes of the business needs hedging exception to those hedged risks arising from branch transactions or property that either result in gain or loss recognized for U.S. federal income tax purposes or that result in foreign currency gain or loss as defined in subpart J. In order to provide context for the discussion of the issues underlying these arguments and their implications, an illustrative example is used. Starting with a base case involving a CFC and a DE having the same functional currency, the example is then modified to incorporate a DE having a different functional currency. Although the economic consequences to the CFC are identical in both cases, the measurement and recognition of gain or loss attributable to currency fluctuations as defined for subpart J purposes diverge significantly. This article explains why the divergent subpart J consequences should not, as an interpretive matter, result in divergent applications of the business needs hedging exception
- Language
- eng
- Label
- Subpart F : hedging currency risk in a branch context
- Title
- Subpart F : hedging currency risk in a branch context
- Language
- eng
- Summary
- When a CFC enters into a derivative transaction to hedge a currency exposure arising from its operations, any gain on the derivative transaction can give rise to foreign personal holding company income (FPHCI) under Subpart F unless the business needs hedging exception is applicable. The task of sustaining the application of the business needs hedging exception can become complex if the underlying currency exposure arises in a branch or a subsidiary disregarded for tax purposes (DE). This article argues, as an interpretive matter, that currency fluctuations risk of a CFC arising from the operations of its branch or DE is not limited for purposes of the business needs hedging exception to those hedged risks arising from branch transactions or property that either result in gain or loss recognized for U.S. federal income tax purposes or that result in foreign currency gain or loss as defined in subpart J. In order to provide context for the discussion of the issues underlying these arguments and their implications, an illustrative example is used. Starting with a base case involving a CFC and a DE having the same functional currency, the example is then modified to incorporate a DE having a different functional currency. Although the economic consequences to the CFC are identical in both cases, the measurement and recognition of gain or loss attributable to currency fluctuations as defined for subpart J purposes diverge significantly. This article explains why the divergent subpart J consequences should not, as an interpretive matter, result in divergent applications of the business needs hedging exception
- Citation source
- In: International tax journal. - Chicago. - Vol. 38 (2012),
- http://library.link/vocab/creatorName
- Shore, J.L
- Geographic coverage
- North America
- Language note
- English
- http://library.link/vocab/subjectName
-
- CFC
- Subpart F income
- hedging transaction
- foreign currency
- Label
- Subpart F : hedging currency risk in a branch context
- Label
- Subpart F : hedging currency risk in a branch context
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<div class="citation" vocab="http://schema.org/"><i class="fa fa-external-link-square fa-fw"></i> Data from <span resource="http://link.library.ibfd.org/portal/Subpart-F--hedging-currency-risk-in-a-branch/ao8usKM-5HM/" typeof="Book http://bibfra.me/vocab/lite/Item"><span property="name http://bibfra.me/vocab/lite/label"><a href="http://link.library.ibfd.org/portal/Subpart-F--hedging-currency-risk-in-a-branch/ao8usKM-5HM/">Subpart F : hedging currency risk in a branch context</a></span> - <span property="potentialAction" typeOf="OrganizeAction"><span property="agent" typeof="LibrarySystem http://library.link/vocab/LibrarySystem" resource="http://link.library.ibfd.org/"><span property="name http://bibfra.me/vocab/lite/label"><a property="url" href="http://link.library.ibfd.org/">International Bureau of Fiscal Documentation</a></span></span></span></span></div>
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<div class="citation" vocab="http://schema.org/"><i class="fa fa-external-link-square fa-fw"></i> Data from <span resource="http://link.library.ibfd.org/portal/Subpart-F--hedging-currency-risk-in-a-branch/ao8usKM-5HM/" typeof="Book http://bibfra.me/vocab/lite/Item"><span property="name http://bibfra.me/vocab/lite/label"><a href="http://link.library.ibfd.org/portal/Subpart-F--hedging-currency-risk-in-a-branch/ao8usKM-5HM/">Subpart F : hedging currency risk in a branch context</a></span> - <span property="potentialAction" typeOf="OrganizeAction"><span property="agent" typeof="LibrarySystem http://library.link/vocab/LibrarySystem" resource="http://link.library.ibfd.org/"><span property="name http://bibfra.me/vocab/lite/label"><a property="url" href="http://link.library.ibfd.org/">International Bureau of Fiscal Documentation</a></span></span></span></span></div>
