BEPS and Commodity Trading (Trading of Derivatives)

Learning CentreBEPS and Commodity Trading (Trading of Derivatives)

BEPS and Commodity Trading (Trading of Derivatives) 

The reports and discussion drafts published by the OECD at this stage suggest that the trading of derivatives for profit is outside the scope of this stage of the BEPS project.

That said, aggressive tax planning structures which rely on the use of derivatives are already under scrutiny in some jurisdictions. For instance, some jurisdictions have either introduced measures to combat such structures or alerted taxpayers that the use of certain instruments is under review. Although the measures or alerts have been driven by other events, it is not inconceivable that tax authorities could apply these measures to commodity trading where relevant.

Whilst commodity trading (specifically trading of derivatives) for bonafide hedging purposes is an essential part of risk management within the business, tax authorities will appreciate that arbitrage and other types of speculation are separate from trading. Accordingly, it may be prudent to describe how and why such instruments are used in a way that is comprehensible for the tax authorities and demonstrates their purpose.

For instance, if the inquiry related to pricing Australian grain, it could be helpful to explain the methodology used to price grain, including how futures, exchange rates, and basis drive pricing of the commodity, requiring commodity trading businesses to use derivatives to manage risk arising from these factors.