Building Transparent Tax Compliance by Banks

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Authors:
OECD
Publication Date :
07 July 2009
Pages :
136
ISBN :
9789264067851 (PDF) ; 9789264067820 (print)
DOI :
10.1787/9789264067851-en

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This book analyses the role banks play in the provision of aggressive tax planning arrangements. It examines the nature of banking, the complex structured financing transactions developed by banks and how they are then used by both banks and their clients. It also explores the internal governance processes that banks use to manage tax risk and the prevention, detection and response strategies applied by different revenue bodies in responding to the challenges that banks pose. The book makes a number of recommendations for revenue bodies and identifies best practices for consideration by banks.
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  • Mark
  • Cover and Table of contents
  • Introduction

    The 2006 ‘Seoul Declaration’ set out the OECD Forum on Tax Administration’s concerns about the significant and growing problem of international non-compliance and the role played by tax advisors, financial and other institutions particularly in relation to the promotion of unacceptable tax minimisation arrangements. The FTA’s subsequent Study into the Role of Tax Intermediaries (Intermediaries Study) concluded that some banks play a significant role in developing and implementing aggressive tax planning, both for their clients and on their own account.

    Building Transparent Tax Compliance by Banks was commissioned at the fourth meeting of the FTA in Cape Town, South Africa, in January 2008 as a follow up to the Intermediaries Study and examines the role of banks in aggressive tax planning, the relationships between banks and revenue bodies, and whether there are benefits in engaging in an enhanced relationship.

  • The banking environment and the financial crisis
    • Banks play a significant role in the global economy.
    • Banks engage with revenue bodies both in relation to their own tax affairs and in their capacity as intermediaries.
    • The complexity and lack of transparency of many innovative financial products developed in the course of investment banking is a key concern of banking regulators and revenue bodies.
    • The financial crisis is having a major impact on the banking environment and as a consequence revenue bodies will need to consider a number of important regulatory and tax compliance issues. 
  • Why revenue bodies are concerned about banks
    • Banks develop complex structured financing transactions (CFSTs) both for their own use and for their clients.
    • When CSFTs are used for aggressive tax planning purposes, revenue bodies are concerned with the lack of transparency of these arrangements, particularly where aspects of the arrangements are undertaken in different jurisdictions.
    • Revenue bodies need to understand CSFTs to better differentiate those that have a tax risk from those that do not.
  • Governance and risk management in banking
    • Revenue bodies want assurance that banks’ risk and governance processes offer protection to both banks and revenue bodies.
    • The governance and risk processes of some banks may not be sufficiently robust for revenue bodies to rely on.
    • Risk and governance processes are an important feature of a bank’s overall regulatory risk framework. Understanding them and testing their effectiveness can assist revenue bodies in their risk assessment of banks.
  • Revenue body risk management and response strategies
    • Revenue bodies have developed a range of responses to challenges resulting from the tax risk posed by banks.
    • These responses have not been sufficiently robust to prevent and detect all instances of aggressive tax planning.
    • Revenue bodies need to develop response strategies which promote improved transparency and compliance with benefits for both revenue bodies and banks.
  • Tax evasion
    • Transparency in relation to all tax-related activities of banks is important to revenue bodies. There is a wide spectrum of issues and behaviours which can generate concern, and at one extreme are banks that are deliberately caught up in tax evasion committed by their clients.
    • Recent scandals involving banks have highlighted the impact of tax evasion on the economies of both developed and developing countries.
  • Conclusions
    This study set out to improve revenue bodies’ understanding of complex structured finance transactions (CSFTs), the role banks play in designing and implementing aggressive tax planning and the prevention, detection and response strategies applied by revenue bodies to respond to the challenges posed by banks. The recommended approach outlined in this study is based on good governance by the banks and enhanced relationships between revenue bodies and banks with potential mutual benefits. The key conclusions from the study are:
  • Bibliography
  • Annex A

    This annex relates to Chapter 2 as it provides examples of why revenue bodies are concerned about banks. In particular, it contains:

    A.1. Cross border sale/repurchase ("repo") arrangement,
    A.2. Foreign tax credits (FTC) generator schemes,
    A.3.Jurisdictional arbitrage financing transaction. 

  • Annex B
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