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Corporate Loss Utilisation through Aggressive Tax Planning

image of Corporate Loss Utilisation through Aggressive Tax Planning

Corporate losses raise compliance risks if aggressive tax planning is used as a means of increasing or accelerating tax relief in ways not intended by the legislator, or to generate artificial losses. This report describes the size of loss carry-forwards, the rules applicable in relation to losses, and identifies the following risk areas: corporate reorganisations, financial instruments and non-arm’s length transfer pricing. After having summarised aggressive tax planning schemes on losses, as well as country detection and response strategies, it offers a number of conclusions and recommendation for tax administration and tax policy officials.

  

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Executive Summary

Due to the recent financial and economic crisis, the amount of global corporate losses is enormous. Over and above the immediate tax revenue impact of these losses as a result of the normal operation of countries’ loss relief rules, these losses also raise tax compliance risks, in particular if companies turn to aggressive tax planning as a means of increasing and/or accelerating tax relief on their losses. This report deals with corporate tax losses. The term “losses” has to be understood broadly for purposes of this report: although the report deals primarily with the tax treatment of taxpayers which have suffered overall losses, it also touches on issues which are relevant to deductions which may reduce a taxpayer’s profits without necessarily resulting in an overall loss. The report deals with both real and artificial losses, as well as with the issue of multiple deductions of the same (real or artificial) loss, typically through hybrid mismatch arrangements.

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