The monetary and monetary problem 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 international locations; describes the tax hazards 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 hazards; and describes the instruments profit our bodies need to deal with those power compliance dangers. It concludes with innovations for profit our bodies and for banks on how dangers concerning financial institution losses can top be controlled and decreased. desk of content material :ForewordExecutive SummaryChapter 1. surroundings the context for present degrees of financial institution tax lossesChapter 2. strength scale/fiscal expense of banks tax lossesChapter three. precis of state ideas relating to taxation of financial institution lossesChapter four. major matters for banks relating to tax lossesChapter five. Compliance/tax probability matters for profit our bodies on the subject of financial institution tax lossesChapter 6. instruments on hand to profit our bodies to handle compliance hazards when it comes to financial institution tax lossesChapter 7. Conclusions and recommendationsAnnex A. nation ideas in terms of taxation of financial institution lossesGlossary of acronyms and technical phrases
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Extra info for Addressing Tax Risks Involving Bank Losses
Tax planning may also include a decision not to close down an otherwise unviable activity on the grounds that utilisation of the loss carry forward may make the activity profitable on an after tax basis. To the extent that tax losses are recognised for regulatory capital purposes, banks may have less of an incentive to engage in loss-trafficking outside the banking group to get value from their accumulated losses carried forward. However, not all tax losses will qualify in full as regulatory capital, and in that case regulatory capital, profitability and cash-flow considerations may all act as incentives for banks to seek to convert accumulated losses into cash.
However, not all tax losses will qualify in full as regulatory capital, and in that case regulatory capital, profitability and cash-flow considerations may all act as incentives for banks to seek to convert accumulated losses into cash. Alternatively, banks may engage in planning to allocate losses within the banking group to the jurisdictions where their value is higher or to maximise the value of losses in anticipation of the change in capital adequacy rules discussed above. The scope for such tax planning is covered more fully in Chapter 5.
The sale price of the shares has been agreed to 8% of the losses reported until year end, thus 40. In year 2, company Y receives 500 from company X in the form of a group contribution. The group contribution is treated as taxable income at the level of company Y (and is used against its tax losses) and as deductible at the level of company X. In year 3, ADDRESSING TAX RISKS INVOLVING BANK LOSSES © OECD 2010 5. COMPLIANCE/TAX RISK ISSUES FOR REVENUE BODIES IN RELATION TO BANK TAX LOSSES – 53 company Y pays 500 as tax-exempt dividends to company X.
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