By Max Clarke

Corporate losses have increased across the world in the wake of the global economic downturn, and part of this surge may be a deliberate use of loop-holes and ‘aggressive tax planning’, Paris-based economic institution, the Organisation for Economic Cooperation and Development has said.

Such aggressive tax planning can erode the tax-pool of developing economies by as much as 25%, prompting governments to adopt complex strategies to deal with the problem.

Consequently, the OECD has published a second journal examining the practice, entitled Corporate Loss Utilisation through Aggressive Tax Planning.

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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