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.
