Japan tax tribunal dismisses Nippon Oil’s tax appeal

The Japanese National Tax Tribunal rejected Nippon Oil Corp.’s request to nullify extra taxes imposed on it in 2006 on gains from energy derivatives trading. Nippon Oil contested the Tokyo regional tax office’s decision that the refiner be required to pay an extra ¥12.5 billion (US$136.15 million) in tax on swaps trading to hedge against moves in crude oil prices. Nippon Oil said in a statement it would examine the tribunal’s decision and decide on its next course of action. It also claimed that it hedged in 2006 about 250,000 kiloliters (1.57 million barrels) of crude oil a year, or about 0.4% of its annual oil product sales. However, the tax office said the company did not use swaps to its purchases against volatile crude prices, but for earning ¥28.4 billion (US$309.34 million) through derivatives trading. Those earnings were on top of booked earnings for the business year ended March 2005, the office told Nippon Oil. Swaps are one of the widely used hedging tools in global oil markets. In Japan, banks and trading houses provide hedging services by using energy derivatives. (January 30, 2009)