On October 8, 2021, the US Internal Revenue Service (the “IRS”) released a private letter ruling that addresses the source of gains and losses incurred in hedging transactions. This is the first guidance on this issue and it creates opportunities for structuring hedging transactions in a manner that could alleviate the tax burden with hedging, both through allocating hedges to non-US sales and through efficient foreign tax credit planning. This Legal Update analyzes how taxpayers can take advantage of the new IRS position.
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