Tag: Natural hedges

Risk arrangement where offsetting exposures within a multinational group neutralise currency or commodity risk without formal instruments. Tax authorities challenge whether natural hedges justify reduced hedging costs charged to subsidiaries or affect arm’s length pricing of intra-group financial transactions.

Netherlands vs "Fertilizer B.V.", March 2023, Hoge Raad, Case No 22/01909 and 22/03307 - ECLI:NL:PHR:2023:226

Netherlands vs “Fertilizer B.V.”, March 2023, Hoge Raad, Case No 22/01909 and 22/03307 – ECLI:NL:PHR:2023:226

/ Business Restructuring, Financial Transactions, Comparable Uncontrolled Price method (CUP), Cost plus, Cost plus mark up, Distribution agreement, Fertilizer, Full fledged producer, Hedging, Natural hedges, Realiteitsbeginsel, Supply agreement, Surplus production, Swiss
A Dutch subsidiary of a Norwegian fertilizer group disputed two issues before the Dutch Supreme Court in 2023: whether a factually effective currency hedge sufficed for coherent valuation of USD receivables and payables, and whether transfer prices under supply and distribution agreements with a Swiss group company were arm's length. The court decided in favour of the tax authority on both points ... Read more

TPG2022 Chapter X paragraph 10.151

/ OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter X: Transfer Pricing Aspects of Financial Transactions, Financial transactions, Hedging, Hedging arrangements, Migration of risk, Natural hedges, Other party, Treasury functions
Possible mechanisms by which an MNE group may centralise the hedging of risk include: delegation of responsibility for hedging to an MNE group treasury entity, with the hedging contracts arranged for and in the name of the relevant operating companies; delegation of responsibility for hedging to an MNE group treasury entity, with the hedging contracts made by and in the name of another MNE group entity; identification of the existence of natural hedges within the MNE group, in which case no formal hedging contracts are made ... Read more