Early closeout of derivatives in the light of corporate income tax

Karczyński Łukasz
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Karczyński Łukasz: Dr, Katedra Prawa Finansowego, Wydział Prawa i Administracji, Uniwersytet Gdański

Financial Law Review, 2016, vol. 1, issue 3, 51-59

Abstract: Due to financial crisis many entrepreneurs suffered heavy losses on derivatives, mainly currency options and forward contracts. Tax authorities tend to disallow deduction of those losses from the taxable income. Many cases ended up in administrative courts, resulting in judicature controversies on the issue in question. This paper is the third of four in a cycle. The aim of the whole cycle will be to analyze deeply these controversies and suggest the proper interpretation of the legal provisions, determining whether the expenses on currency options and forward contracts should or should not be regarded as tax-deductible expenses. The aim of this paper is to determine if the rights from the derivatives are being exercised or waived (as the law provides) in case of their early closeout (which allows the deduction as well). The conducted analysis suggests that early derivative closeout realises in exercising the rights from the derivative (as the law provides) which allows the deduction.

Keywords: currency option; forward contract; tax-deductible expense; corporate income tax; derivative; early closeout (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:finlaw:v:1:y:2016:i:3:p:51-59:n:5

DOI: 10.1515/flr-2016-0017

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