The monetary and financial predicament had a devastating impression on financial institution gains, with loss-making banks reporting worldwide advertisement losses of round USD four hundred billion in 2008. This entire file units the marketplace 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 on the subject of 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 hazards. It concludes with suggestions for profit our bodies and for banks on how dangers concerning financial institution losses can top be controlled and lowered. desk of content material :ForewordExecutive SummaryChapter 1. atmosphere the context for present degrees of financial institution tax lossesChapter 2. power scale/fiscal price of banks tax lossesChapter three. precis of kingdom ideas with regards to taxation of financial institution lossesChapter four. major matters for banks when it comes to tax lossesChapter five. Compliance/tax threat concerns for profit our bodies on the subject of financial institution tax lossesChapter 6. instruments to be had to profit our bodies to deal with compliance hazards when it comes to financial institution tax lossesChapter 7. Conclusions and recommendationsAnnex A. state principles relating to taxation of financial institution lossesGlossary of acronyms and technical phrases
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Additional info for Addressing Tax Risks Involving Bank Losses
Particular attention will be devoted by revenue bodies to the consistency of the transfer pricing policy of banks with the business models adopted over time. In the years before the financial crisis, some banks were managing large financial assets through foreign subsidiaries located in low-tax jurisdictions. Due to the crisis, large losses have materialised in relation to these financial assets, over and above the losses which have been sustained in relatively high-tax jurisdictions. Revenue bodies are concerned that in some cases these loss-making financial assets may be allocated to relatively high-tax jurisdictions, through non arm’s length transactions or dealings.
This is because the correlation between bonus compensation and losses may be less clear than the correlation between bonus compensation and profits. In such circumstances a careful analysis of the enterprise’s compensation policy for loss years and the reasons for a particular loss would be needed to construct a sensible methodology based on a proper analysis of the facts and circumstances of the particular case. As noted in the “Report on the Attribution of Profits to Permanent Establishments”, any solution that taxpayers adopt for dealing with losses should be consistent with the arrangements that would have been made, up front, by independent enterprises.
To some extent – as set out below - there are factors which potentially mitigate this concern, at least in the short term, and a contraction of the structured finance activity in the wake of the crisis may have temporarily reduced opportunities for aggressive tax planning involving structured finance products. Even so, although at present there is no evidence of significant manipulation of the estimated USD 700 billion+ stock of tax losses, the scale of these losses, and the potential regulatory capital, profitability and cashflow benefits for banks able to convert them to cash, mean that revenue bodies are alert to potential compliance risks in a number of areas.
Addressing Tax Risks Involving Bank Losses by OECD