Aggressive tax planning schemes based on after-tax hedging pose a threat to tax revenue, and any country that taxes the results of a hedging instrument differently from the results of the hedged transaction or risk is potentially exposed, the OECD has warned.
In a report published last week the OECD recommended that governments ensure that tax administrations have access to sufficient resources and expertise in financial instruments and hedge accounting to detect and examine such schemes.
‘After-tax hedging, while not of itself aggressive, may be used as a feature of schemes which are designed to allow taxpayers to achieve higher returns, without actually bearing the associated risk which is in effect passed on to the government through the tax charge,’ it said.
The OECD called for a balanced approach, recognising ‘that not all arrangements are aggressive, that hedging in and of itself is not an issue and that [aggressive tax planning] schemes based on after-tax hedging may necessitate a combination of response strategies’.
However, the report said empirical evidence suggested that ‘hundreds of millions of US dollars are at stake, with a number of multi-billion transactions identified by countries’. The schemes were used by different types of taxpayers and across various industries, it added.
Aggressive tax planning schemes based on after-tax hedging pose a threat to tax revenue, and any country that taxes the results of a hedging instrument differently from the results of the hedged transaction or risk is potentially exposed, the OECD has warned.
In a report published last week the OECD recommended that governments ensure that tax administrations have access to sufficient resources and expertise in financial instruments and hedge accounting to detect and examine such schemes.
‘After-tax hedging, while not of itself aggressive, may be used as a feature of schemes which are designed to allow taxpayers to achieve higher returns, without actually bearing the associated risk which is in effect passed on to the government through the tax charge,’ it said.
The OECD called for a balanced approach, recognising ‘that not all arrangements are aggressive, that hedging in and of itself is not an issue and that [aggressive tax planning] schemes based on after-tax hedging may necessitate a combination of response strategies’.
However, the report said empirical evidence suggested that ‘hundreds of millions of US dollars are at stake, with a number of multi-billion transactions identified by countries’. The schemes were used by different types of taxpayers and across various industries, it added.
