Addressing Tax Risks Involving Bank Losses by OECD


The monetary and monetary hindrance had a devastating influence on financial institution gains, with loss-making banks reporting worldwide advertisement losses of round USD four hundred billion in 2008.  This entire document units the industry context for financial institution losses and offers an summary of the tax remedy of such losses in 17 OECD nations; describes the tax hazards that come up when it comes to financial institution losses from the viewpoint of either banks and profit our bodies; outlines the incentives that supply upward push to these dangers; and describes the instruments profit our bodies need to deal with those power compliance dangers. It concludes with suggestions for profit our bodies and for banks on how dangers related to financial institution losses can top be controlled and diminished. desk of content material :ForewordExecutive SummaryChapter 1. environment the context for present degrees of financial institution tax lossesChapter 2. power scale/fiscal price of banks tax lossesChapter three. precis of kingdom principles with regards to taxation of financial institution lossesChapter four. major concerns for banks when it comes to tax lossesChapter five. Compliance/tax hazard concerns for profit our bodies relating to financial institution tax lossesChapter 6. instruments to be had to profit our bodies to deal with compliance dangers in terms of financial institution tax lossesChapter 7. Conclusions and recommendationsAnnex A. kingdom ideas on the subject of taxation of financial institution lossesGlossary of acronyms and technical phrases

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Some banks are concerned that revenue body audit procedures may mean that they do not have certainty about the amount of losses available to be used in the future, even though the loss- ADDRESSING TAX RISKS INVOLVING BANK LOSSES © OECD 2010 4. MAIN ISSUES FOR BANKS IN RELATION TO TAX LOSSES – 39 making year has already been audited by the revenue body. They consider that rules restricting loss carry forward in case of change of ownership or activity may have unintended consequences in the current climate and could hamper beneficial restructuring.

As noted in the “Report on the Attribution of Profits to Permanent Establishments”,6 this raises difficult issues where the split hedges occur between associated enterprises and will be the subject of future work. In the meantime, general guidance on transactions which purport to transfer risk from one associated enterprise to another can be found in chapter IX of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD, 2010). Particular problems also arise where financial institutions use “net” hedging strategies so that it is almost impossible to trace the gain or loss from any particular transaction to the offsetting gain or loss on the customer transaction it hedges.

For example, in one country, capital gains on shares in EEA countries are exempt (and therefore capital losses are not deductible), and the technique consists in transferring the corporate residence of a loss-making company to a non-EEA country in order to benefit from the deduction of the capital loss on the planned alienation of its shares. The transfer of the corporate residence took place purely on paper, without any change in the underlying economic substance. … including techniques which anticipate likely losses or which exploit CFC rules to import losses.

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