The monetary and financial challenge had a devastating effect on financial institution gains, with loss-making banks reporting international advertisement losses of round USD four hundred billion in 2008. This accomplished record units the marketplace context for financial institution losses and offers an outline of the tax therapy of such losses in 17 OECD nations; describes the tax dangers that come up on the subject of financial institution losses from the viewpoint of either banks and profit our bodies; outlines the incentives that supply upward push to these dangers; and describes the instruments profit our bodies need to deal with those capability compliance dangers. It concludes with ideas for profit our bodies and for banks on how hazards regarding financial institution losses can most sensible be controlled and decreased. 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 kingdom principles when it comes to taxation of financial institution lossesChapter four. major concerns for banks on the subject of tax lossesChapter five. Compliance/tax probability concerns for profit our bodies on the subject of financial institution tax lossesChapter 6. instruments on hand to profit our bodies to handle compliance dangers with regards to financial institution tax lossesChapter 7. Conclusions and recommendationsAnnex A. kingdom ideas on the subject of taxation of financial institution lossesGlossary of acronyms and technical phrases
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Additional info for Addressing Tax Risks Involving Bank Losses
If a low cost alternative to tax losses as a means of sheltering taxable profits is available, the value of the losses to a third party corporate group (and therefore to the bank) will be reduced. In broad terms, as the quantum of a bank’s losses goes up, the profits needed to fully absorb the losses increase; it becomes less likely that the full value of the losses will be recognised as a deferred tax asset and be able to fully qualify as regulatory capital. In these cases, the marginal value of each additional unit of loss reduces, and planning opportunities that involve selling losses in return for a fee may become more attractive.
The same applies to most countries’ rules on tax consolidation or group taxation, which act to deter tax-driven mergers and acquisitions by ring-fencing losses within the entities (or group of jointly-owned entities) which incurred them. … and revenue bodies are alert to techniques designed to frustrate necessary restrictions … Revenue bodies (in particular those where real time working is the norm) are already examining the tax consequences of changes of ownership and reorganisations to ensure that the rules are being complied with.
As a result, the regulatory capital recognition of tax losses is generally seen by banks as more important than the cash-flow benefit of accelerating loss offset. In December 2009 the Basel Committee on Banking Supervision put forward proposals to strengthen bank capital adequacy, emphasising common equity as the principal component of Tier 1 capital (BIS, 2009b). Following consultations, these proposals were amended in July 2010. The proposals, as amended and which are likely to be adopted on a phased basis, place strict limits on the amount of deferred tax assets that can count as regulatory capital.