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OECD Comments on After-Tax Hedging Aggressive Tax Planning 

Global Tax Adviser

 

April 23, 2013

 

Chuck Ormrod
GTA, Canadian Corporate Tax

 

The OECD's recently released report "Aggressive Tax Planning based on After-Tax Hedging" describes the features of aggressive tax planning schemes based on after-tax hedging as well as strategies used by countries to detect and respond to those schemes. The report also highlights a number of challenges from a compliance and policy perspective. The 44-page report builds on the OECD's report on "Corporate Loss Utilization through Aggressive Tax Planning (2011)".

The issue — After-tax hedging schemes
The report says the OECD recognizes that risk management and hedging are key issues in corporate management. Although after-tax hedging it not of itself aggressive, it may be used as a feature of schemes designed to allow taxpayers to achieve higher returns without actually bearing the associated risk, which in effect is passed on to the government through the tax system. The OECD states that these schemes originated in the banking sector but they are now used in other industries and also by medium-sized enterprises. As such, they pose a threat to countries' revenue bases.

 

Recommendations
The OECD recommends that countries concerned with aggressive tax planning schemes based on after-tax hedging should:

 

  • Focus on detecting the schemes and ensure their tax administrators have access to sufficient resources to detect these schemes
  • Introduce rules to avoid or mitigate the disparate tax treatment of hedged items and hedging instruments
  • Verify whether existing general or specific anti-avoidance rules are suitable to address the schemes and if not, amend the rules or introduce new rules
  • Adopt a balanced approach since not all after-tax hedging transactions are aggressive
  • Continue to exchange information on aggressive tax planning schemes.

 

The report

The report is organized into the following three broad categories:

 

  • Aggressive tax planning schemes based on after-tax hedging
  • Strategies used to detect and respond to aggressive tax planning schemes based on after-tax hedging
  • Policy and compliance issues arising from after-tax hedging.

 

For more information, contact your KPMG adviser.

 

Information is current to April 23, 2013. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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