Tax losses: OECD report highlights risk areas, detection methods, and potential increase of tax disputes

Tax Controversy & Dispute Resolution ()

The Organization for Economic Co-operation and Development (OECD) recently released a new publication entitled, "Corporate Loss Utilisation through Aggressive Tax Planning" (the "Loss Report"). Due to the global financial and economic crisis, the OECD concludes that the amount of global corporate losses is "enormous." Of the various countries surveyed, the trend is for the percentage of tax loss carry-forwards to be generally above 10 percent in relation to the country's gross domestic product (GDP.) The OECD asserts that the amount of such corporate tax loss carry-forwards may serve to significantly reduce the revenues of governments, although a more rapid rise in GDP could negate this impact.

The OECD further concludes that participating countries "have encountered a number of aggressive tax planning schemes on losses." Under these schemes, according to the OECD, taxpayers may attempt to shift profits and losses, circumvent rules and restrictions on the recognition, treatment, or carryover of losses, claim multiple deductions relating to the same loss, and even create "artificial" tax losses. The Loss Report distinguishes between transactions that are used inappropriately and those performed for reasons relating to sound business and economics. It also highlights that taxpayers may be side stepping restrictions rather than viewing them as a "fundamental policy prohibition."