Netherlands - When Must Hedge Accounting Be Applied for Dutch Income Tax Purposes?
- R. Kok; J. Op den Brouw
- Derivatives & Financial Instruments, 2010 (Volume 12), No 4
- 1 July 2010
Under Dutch tax law, when calculating the taxable profit, because of the principle of prudence, it is possible to take into account a loss that has not yet been realized and not to take into account a gain that not yet has been realized. This is called the “asymmetry of sound business practice”. However in some cases, the principle of reality limits the application of the principle of prudence, and for tax purposes hedge accounting needs to applied. This is the case when there is a qualitative and (sufficient) quantitative relationship between two assets/liabilities. This article considers the qualitative and quantitative tests, as well as how the Supreme Court applies those two tests.