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Hedging Adjustment Payment
Hof Amsterdam, 20 februari 2024, nr. 23/216, ECLI:NL:GHAMS:2024:635
4.1 Naar het oordeel van het Hof houdt de Hedging Adjustment Payment niet rechtstreeks verband met de belaste handelingen die belanghebbende jegens het Ministerie verricht op grond van de DBFM-overeenkomst. Daarom is die betaling niet aan te merken als een negatieve component van de vergoeding voor de belaste handelingen die belanghebbende voor het Ministerie verricht ingevolge de DBFM-overeenkomst. Redengevend voor dat oordeel is dat regeling over de Hedging Adjustment Payments in de DBFM-overeenkomst geheel los is gekoppeld van de formule om de beschikbaarheidsvergoedingen te berekenen; de Hedging Adjustment Payments behoren niet tot wat op grond van die overeenkomst de beschikbaarheidsvergoedingen zijn.
4.2. Het eigenstandige karakter van de Hedging Adjustment Payments vindt bevestiging in de omstandigheid dat zij separaat van de betaling van de beschikbaarheidsvergoedingen worden afgewikkeld. Zij houden strikt genomen ook geen verband met de werkzaamheden die belanghebbende ingevolge de DBFM-overeenkomst dient te verrichten, maar met de rentestand (een externe factor). De omstandigheid dat de Hedging Adjustment Payments in de DBFM-overeenkomst zijn opgenomen, die als geheel ertoe strekt het Ministerie de beschikking te geven over de HSL-zuid, is daartegenover van onvoldoende gewicht voor een ander oordeel. Doorslaggevend is de contractuele vormgeving van de afspraken tussen belanghebbende en het Ministerie in de DBFM-overeenkomst.
4.3. Bij deze stand van het geding is tussen partijen terecht niet in geschil dat een Hedging Adjustment Payment niet de vergoeding is voor enige handeling in de zin van de Wet op de omzetbelasting 1968. De behandeling van de betalingen onder het hedging arrangement met het Ministerie is daarmee neutraal ten opzichte van die van soortgelijke betalingen wanneer het renterisico bij een derde partij was afgedekt, zoals tot 31 maart 2007 het geval was.

2007 - http://www.cwtax.co.uk/Webpages/News/hedging-whether_there_is_always_an_exempt_supply.htm
Hedging - whether there is always an exempt supply
A recent decision of the VAT Tribunal in the case of Willis Pension Trustees Ltd has raised a question mark over the VAT treatment of a number of transactions frequently undertaken by businesses as a financial hedge. The potential impact will be particularly important for non financial-sector businesses, including oil and gas producers, using hedging products to protect their trading positions. However, if taken to its logical conclusion, it could also affect brokers through whom these transactions are effected.
The issue arose as a result of the earlier decision in the First National Bank of Chicago case on foreign exchange. This held that, contrary to Customs & Excise’ long-held view, a dealing in foreign exchange was not simply an exchange of currency but amounted to a supply for consideration for VAT. The inference was that the transaction amounted to a reciprocal supply by each party to the other. The supply in this case, being money, is basically VAT-exempt, raising the possibility that the hedge transactions could have the effect of restricting the business’ general ability to recover input tax.
For non-financial businesses, in many cases, it is arguable that this ought not to have given major problems. The VAT Regulations 1995 treat any input tax exclusively incurred in the making of exempt supplies as irrecoverable, but allow, in Regulation 101(3)(b), certain financial and property transactions to be see as incidental and disregarded, where the underlying input tax has been incurred for mixed use. Any underlying input tax is then treated just as any other overhead VAT.
Unfortunately, in practice, when they are aware that hedging is being undertaken, HMRC have not always been prepared to see such transactions as incidental, especially in the context of an active trading department. In the case of Willis Pension Trustees, they had insisted that input tax was wholly irrecoverable on the basis that it related wholly to the VAT-exempt supplies from its hedging activities and it could be that, were they aware of the situation, they could take a similar stance with, say, the trading departments of oil and gas producers.
On appeal, however, Willis successfully maintained that, for the transactions it was involved in, there was only ever a supply by the bank with whom the hedges were effected. For there to be a supply of services for VAT, there has to be consideration. Although the bank in this case will be looking to profit from every FX transaction (in the spread between its exchange rates), a non-financial counterparty will not receive anything capable of being seen as consideration for anything done.
Interestingly, as regards other hedging products, the Tribunal commented, as an obiter, to the effect that similar principles could apply to things like interest rate swaps. These, like FX transactions, will outwardly imply a supply by both counterparties and are frequently used by oil and gas producers, for example, for hedging purposes, along with similar products, such as price-swaps and contracts for differences.
Comment
We have since been in touch with HMRC about this case and now understand that it is not being appealed. What is not clear at the moment, though, is how HMRC will be applying the decision in practice.
The decision seems to be aimed at the sort of hedge transactions that are outwardly reciprocal – ie which appear to involve each party making a supply to the other. Whether it could or would be applied to financial futures or options appears possibly open to debate, although, for futures traded on LIFFE, for example, HMRC do not, in practice recognize a supply by the client to the broker when a position is closed-out.
More generally, the decision in Willis Pension Trustees may have an impact on the VAT position of brokers, although it may well be that there can be a distinction made between situations where both clients are banks and those where they are not. It may also be the case that there is no overall impact, depending on the locations of the particular client counter-parties.
If companies would like to discuss this issue lease contact Peter Landon on 0207 936 8306 , email landonp@cwenergy.co.uk or their normal CWE contact.