OECD publishes report on corporate tax avoidance
The OECD published, on 30 August 2011, a new report titled "Corporate Loss Utilisation Through Aggressive Tax Planning", which examines three key risk areas in which companies claim losses to avoid taxes -- corporate reorganisations, invalid financial instruments and transfer pricing.
It said that 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 were justified, some corporations were exploiting loopholes and using "aggressive tax planning" to avoid taxes in ways that were not within the spirit of the law.
The report outlines strategies to detect and respond to these aggressive tax planning schemes. It said that 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 taxpayers not to use or promote certain schemes.
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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