EU gathers evidence on deferred tax assets

The European Union is gathering evidence for a possible investigation into whether Greece, Italy, Portugal and Spain are illegally supporting banks that use a type of capital considered low-quality by international regulators.



The inquiry relates to so-called deferred tax assets, which are created when a company has made big losses, giving companies a discount on future tax bills.



The European Commission, the bloc's top antitrust authority, is "currently sending out letters asking for information to those member states that do provide guarantees on deferred tax assets," an EU spokesman said on Tuesday.



The regulator aims to "understand how these measures work and to form a view [as to whether] state aid is involved," the spokesman said. He said the assessment would "take some time."



The news was reported earlier by the Financial Times newspaper.



Deferred tax assets can only be used if a bank generates enough taxable profit that they can be used to offset. That means they can't be converted into cash during stressed periods.



Recognising this, the new Basel III capital rules for banks say these types of deferred tax assets can no longer count as capital. In Europe, banks have to progressively remove them so that by 2019 they make up no part of core capital.

Originally published as EU gathers evidence on deferred tax assets