IWS Documented News DAILY POSTINGS

IWS Documented News Service
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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
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OECD

Corporate Loss Utilisation through Aggressive Tax Planning [August 2011]

http://www.oecd.org/document/61/0,3746,en_2649_33767_48570813_1_1_1_1,00.html

Corporate losses raise compliance risks if aggressive tax planning is used as a means of increasing or accelerating tax relief in ways not intended by the legislator, or to generate artificial losses. This report describes the size of loss carry-forwards, the rules applicable in relation to losses, and identifies the following risk areas: corporate reorganisations, financial instruments and non-arm’s length transfer pricing. After having summarised aggressive tax planning schemes on losses, as well as country detection and response strategies, it offers a number of conclusions and recommendation for tax administration and tax policy officials.

Press Release 30 August 2011

Tax: Governments concerned that some corporations unfairly claim losses to avoid taxes

http://www.oecd.org/document/6/0,3746,en_21571361_44315115_48587270_1_1_1_1,00.html

30/08/2011 - Due to the recent financial and economic crisis, global corporate losses have increased significantly. Numbers at stake are vast, with loss carry-forwards as high as 25% of GDP in some countries. Though most of these claims are justified, some corporations find loop-holes and use ‘aggressive tax planning’ to avoid taxes in ways that are not within the spirit of the law.

This aggressive tax planning is a source of increasing concern for many countries and they have developed various strategies to deal with it. Working cooperatively, countries can deter, detect and respond to aggressive tax planning while at the same time ensuring certainty and predictability for compliant taxpayers.

Corporate Loss Utilisation through Aggressive Tax Planning, which builds on Addressing Tax Risks Involving Bank Losses (2010), looks at a number of commonly used schemes and identifies three key risk areas: corporate reorganisations, financial instruments and non-arm’s length transfer pricing. Though these are generally used for sound business and economic reasons, some taxpayers use them to obtain undue tax advantages. For example, countries have identified financial instruments that create artificial losses or obtain multiple deductions for the same loss. They have also seen loss-making companies acquired solely to be merged with profit-making companies and loss-making financial assets artificially allocated to high-tax jurisdictions through non arm’s length transactions.

The report outlines strategies to detect and respond to these aggressive tax planning schemes. Detection usually takes place through audits, special reporting obligations on losses, mandatory disclosure rules, rulings, and co-operative compliance programmes. Responses require a comprehensive approach focusing on aggressive tax planning schemes, as well as on their promoters and users. Early engagement between taxpayers and tax authorities in the framework of disclosure initiatives and co-operative compliance programmes also has positive effects, convincing some tax payers not to use or promote certain schemes.

Through the OECD, countries share intelligence on aggressive tax planning schemes and increase international co-operation on detection, responses, and evaluation. Governments should also introduce policies to restrict the multiple use of the same loss and to introduce or revise restrictions on the use of certain losses in the context of mergers, acquisitions, or group taxation regimes. Finally, the report identifies emerging threats for tax revenue, such as aggressive tax planning schemes based on after-tax hedges, and suggests that countries analyse the policy and compliance issues related to them.

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This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

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Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
New York, NY 10016                        
                                   
Telephone: (607) 262-6041               
Fax: (607) 255-9641                       
E-mail: smb6@cornell.edu                  
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