The Resource Subpart F : hedging currency risk in a branch context

Subpart F : hedging currency risk in a branch context

Label
Subpart F : hedging currency risk in a branch context
Title
Subpart F : hedging currency risk in a branch context
Creator
Subject
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
Instantiates
Publication
Label
Subpart F : hedging currency risk in a branch context
Publication

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