BLOGS & OPINION | Contributed Content, Singapore
Emanuel Hiou

Global tax code for banks to shape behaviours


The OECD’s increasingly influential Forum on Tax Administration recently endorsed a global code of practice on tax for banks (the OECD tax code). The OECD tax code is described as a framework and adoption by OECD member countries is voluntary. However, regardless of the extent to which it is formally adopted by OECD member countries, it is likely to become influential in shaping tax governance standards for banks and relationships between banks and tax authorities globally, including in the Asia Pacific region.

The OECD’s tax code sets out expectations about the behaviour of banks in relation to tax compliance, governance processes, tax planning activities and relationships with tax authorities. Many of these behaviours reflect sound corporate governance practices.

One of the more interesting elements of the OECD’s tax code relates to behaviours on tax planning. The OECD tax code requires banks to not use or promote aggressive tax planning. This is generally defined to mean planning which produces a tax position which is tenable, but has unintended or unexpected tax consequences, or taking a tax position in relation to a significant matter which is uncertain and not openly disclosed to the tax authorities.

This is likely to create some interesting practical challenges for banks and tax authorities, given the complexity and uncertainty of tax law generally. The code refers to the approach adopted by the UK’s tax code for guidance. It suggests that tax consequences may be unintended or unexpected if they are “too good to be true”.

The other area that is regarded as aggressive tax planning relates to uncertain tax positions which are not disclosed to the tax authorities. The OECD tax code refers to this as involving grey areas of the law. Tax authorities such as the IRS in the US are starting to require formal disclosures of uncertain tax positions. Australia is also exploring the feasibility of implementing a similar disclosure requirement.

The practical challenges and difficulties in fully complying with this element of the OECD’s tax code demonstrates the importance of maintaining robust tax governance processes and open relationships with tax authorities, two of the other elements of the OECD’s tax code. If banks can demonstrate sound tax risk management practices and constructive working relationships with tax authorities, then arguably a commitment to not adopt or promote aggressive tax planning should not be required.


The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.

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Emanuel Hiou

Emanuel Hiou

Emanuel Hiou is a Partner on Financial Services Taxation at Deloitte Australia.

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