Tax Implications of Hedging
Risk is an inevitable part of business. Businesses, therefore, need to develop effective and consistent risk management strategies to reduce their risk to acceptable levels. In the face of the crash in global commodity prices, currency volatility, interest rate risk and the uncertainties in many markets, one of the risk management strategies that any business can adopt is hedging. Simply put, hedging is the practice of reducing the investment risk associated with adverse price movements in an asset or market, by taking an offsetting position in a related market or security, such as a futures contract, forward, options, swaps, etc.
In 2014, the Mexican government paid $773 million as premium for a one-year hedge which gave it the right to sell 228 million barrels of oil at a guaranteed price of $76.40 per barrel between 1 December 2014 to 30 November 2015 – a period when the average price of the country’s oil basket declined to US$46.61. The country made a whopping gain of about US$6 billion from the transaction! Hedging techniques are great from a commercial point of view. However, there are crucial tax issues that companies need to consider when evaluating the potential impact of hedging transactions on their business, to avoid the resulting gains being eroded by tax exposures. This is especially important, as there are no specific provisions in the Nigerian tax code on the taxation of hedging transactions.
This training programme will help participants understand issues such as:
- Hedging instruments and hedged items
- Alternative hedging strategies e. upfront or deferred premium put arrangement, 2-way collar, 3-way collar, 4-way collar etc.
- Features of a standard hedging agreement
- Hedge accounting
- The tax implications of hedging transactions
- Strategies for managing tax exposure on gains from
In delivering the training, we will use various instructional modes, such as:
- Instructor-led structured discussions, and practical applications directed at real-life cases
- Practical learner-centred approach with emphasis on transfer of learning to participants
- Case studies and mini quizz
Tax Controllers and Managers, Finance Controllers and Managers, Legal Officers and Managers and related functions with responsibility for tax and commercial compliance and administration.
Course Duration and Fee
This programme is scheduled to run for a day. The fee for the training is N75,000 per participant (exclusive of VAT); and covers tuition, course materials, lunch and refreshments.
We offer group discount of 5% for 2 to 4 participants and 10% discount for 5 or more participants.