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The monetary and monetary challenge had a devastating impression on financial institution earnings, with loss-making banks reporting international advertisement losses of round USD four hundred billion in 2008. This entire document units the industry context for financial institution losses and offers an summary of the tax therapy of such losses in 17 OECD nations; describes the tax dangers that come up with regards to financial institution losses from the viewpoint of either banks and profit our bodies; outlines the incentives that supply upward thrust to these dangers; and describes the instruments profit our bodies need to deal with those power compliance hazards. It concludes with innovations for profit our bodies and for banks on how dangers related to financial institution losses can top be controlled and lowered. desk of content material :ForewordExecutive SummaryChapter 1. atmosphere the context for present degrees of financial institution tax lossesChapter 2. power scale/fiscal price of banks tax lossesChapter three. precis of state principles relating to taxation of financial institution lossesChapter four. major concerns for banks when it comes to tax lossesChapter five. Compliance/tax hazard matters for profit our bodies with regards to financial institution tax lossesChapter 6. instruments on hand to profit our bodies to handle compliance hazards on the subject of financial institution tax lossesChapter 7. Conclusions and recommendationsAnnex A. state ideas when it comes to taxation of financial institution lossesGlossary of acronyms and technical phrases
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ADDRESSING TAX RISKS INVOLVING BANK LOSSES © OECD 2010 52 – 5. COMPLIANCE/TAX RISK ISSUES FOR REVENUE BODIES IN RELATION TO BANK TAX LOSSES Corporate reorganisations A further compliance risk involves transfer of losses/profits through reorganisations. ) are generally made for sound business and economic reasons, and have an important role to play in ensuring the banking sector recovers from the crisis. This includes reorganisations to consolidate risk handling at the bank’s head office location, or to isolate the type of “toxic” assets which triggered the crisis.
In most countries, a deferred tax asset may have the effect of increasing regulatory capital, to the extent that this represents cash due to the company from the government (or a reduction in tax otherwise due), provided there is the prospect of loss relief being given to trigger this cash-flow. e. the amount of the loss multiplied by the tax rate at which relief is expected, with no discounting for the deferred realisation. This means that each USD 100 million of a tax loss, if potentially relievable at 33%, could give rise to a deferred tax asset of USD 33m, and if this qualifies as regulatory capital, with an assumed minimum capital to assets ratio of 5%, could support lending/assets of up to USD 660 million, depending on the risk weighting of the lending/assets concerned.
In the years before the financial crisis, some banks were managing large financial assets through foreign subsidiaries located in low-tax jurisdictions. Due to the crisis, large losses have materialised in relation to these financial assets, over and above the losses which have been sustained in relatively high-tax jurisdictions. Revenue bodies are concerned that in some cases these loss-making financial assets may be allocated to relatively high-tax jurisdictions, through non arm’s length transactions or dealings.