Taxmen should start dialogue with financial institutions: IMF

Last Updated: Sunday, August 9, 2009 - 20:43

New Delhi: Taxmen worldwide should see the global downturn as a chance to start a better dialogue with financial institutions keeping in view the fact that the economic crisis has made them a risk area for the tax authorities, an IMF paper says.
"Tax agencies may use the financial crisis as an
opportunity to enter into a more co-operative relationship
with financial institutions...," the paper on `Collecting
Taxes During an Economic Crisis: Challenges and Policy
Options` said.

A paper prepared by John Brondolo of the multilateral
lending institution said that even before the crisis set in,
the financial sector`s size and complexity made for a
difficult and specialised environment for the tax-collecting
authorities.

"During 2008 and into 2009, many financial institutions
have experienced large losses, some have collapsed and others
are undergoing restructuring or mergers," the paper said.

In order to have better co-operation with financial
institutions, the tax authorities could work on a unilateral
statement on how it intends to work with them or a joint
charter by tax agencies and stakeholders could help the move,
it said.

The major tax-compliance risk for banks and other
financial institutions involves tax avoidance schemes.
These usually have highly structured financial transactions,
circular and cross-border flows of funds, and intra-group
exchanges, the IMF paper said.

Besides, banks` capital-raising operations present
another risk for the tax authorities, the paper said.

During the economic downturn, financial institutions like
others are bound to have huge losses. Tax laws in many
countries permit loss-sustaining firms to carry forward or
carry back their losses.

"Tax agencies will need to carefully evaluate the losses
reported by financial institutions," the paper added.

Bureau Report



First Published: Sunday, August 9, 2009 - 20:43

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