Sometimes it seems essential to find out about such technical issues that affect us in society, and although little explored we have to understand the concepts that they entail when faced with a matter of public interest. It may not be a flashy enough subject, but when it exists in the deferred tax assets a sudden change can jeopardize financial stability, a situation that does provoke a genuine interest in informing us about it.
The European commission is about to start an investigation into deferred tax assets, known by its acronym in English DTA, of banks in Italy, Spain, Portugal and Greece.
What are deferred tax assets?
Assets are those that occur when losses are recorded within a period that can be offset later, at the time the benefits are generated, which constitutes a fiscal credit. The changes have arisen due to the fact that there is a solvency regulation that entered in 2014 in which it is required that the bank's DTAs are deductible from their own resources, this is no longer guaranteeing that their value is sustained in the event that the entity goes through financial difficulties.
As in the case of Spain, for example, in 2013, during the month of November, it was authorized that part of these assets could retain their value for a longer time. The main idea was not so much that a artificial advantage in the economic sector but to be able to equip it with the tax treatment in which both banks and other companies enjoyed in other countries of the European continent. The tax regulations of Spain are much tougher than those of other European countries on the assumptions at the time of using these credits, it should also be noted that unlike in other countries, it is not allowed to return taxes that are paid in years above in the event that losses are declared in a company.
It is difficult to understand the true intentions or what is the motivation to do a possible investigation, so spokesmen have acknowledged that for now it is only a matter of administrative letters towards the authorities of the countries that are involved, also recognizing that these inquiries are made to some MEPs.
The issue is often a surprising situation when viewed from a formality or consistency point of view. But why create so much uncertainty about an issue that was evaluated and approved so much by the European Commissionto but throughout the European continent. It has even been suggested in important reports that both institutions have taken the aforementioned legislative measures regarding deferred tax assets to support the economic solvency of the sector. It was also caused to carry out an exhaustive analysis about the quality of the assets that are on the part of the ECB.
What are DTAs?
Finance entities They have expenses that can reduce their benefits but that, thanks to the law, until today, they have not been able to deduct from the society tax, which means that they pay more taxes than they should actually be paid . For this reason and after making a comparison with other countries of European legislation in what is allowed to compensate.
Therefore, the economy and the treasury have recognized the right to reserve these expenses for use in the future with the purpose of reducing taxes that they will have to pay for the benefits that will be caused in the following years. For that reason it is known as deferred.
Where do these non-deductible expenses come from?
There are three sources from which these expenses come. The first is from provisions that banks have What to do to be able to cover the risk of loss of your assets in the future, especially if the credit that promotes the properties is derived from the Guindos decrees of 2012. Said capital provision is removed from the benefit, but as it is not a real loss, the money continues to be kept in the entity and the economic base on which the Corporation tax is calculated is not reduced, therefore a tax asset is produced that is deferred.
The second source is the one consisting of contributions that banks make to pension plans to cover their employees, which is money that is captured as an expense and that decreases the benefit, but since it is saved in the same way, it is not deductible either.
And finally, the third source is in the losses from previous years that, according to the current legislation on corporation tax, when a company shows losses, it can use them to reduce the taxes it will pay in the future, when they are taken into account as profits again.
The entities in Spain that have complained of not having appropriate legislation on tax credits. As we mentioned in previous paragraphs, the Guindos decrees are those that oblige all economic entities in Spain to have a provision for the assets that were considered to have problems in 2012. A capital of importance that caused general losses in the sector, for what for the future is more the capital that was destined to pension plans, which is also a problem, especially for Spanish banks.
This comes down to the fact that the sector has a total of 50 billion euros. if it is taken into account that removing equity from this figure means that Spanish entities have to need a capital increase in general.
For this reason, European regulations Basel III, They have been granted a period of 10 years to gradually subtract, and with this the impact also decreases significantly, but the markets in turn will demand that the entities enforce the different solvency requirements with all their respective deductions as if those 10 years had already elapsed, those who do not carry it out will also be penalized.
The government has approved a royal decree of law in which it is stipulated that the bank can continue to compute as capital the DTA. In this way, from that moment the tax credits can be recovered at any time and there will be no time limit for them to be noted as such, so much so that the benefits cannot be foreseen as a bankruptcy is foreseen in the same way.
At the time that an entity has losses, in the future, the state will be the one that will have to replace it by putting part of the money that remains to be compensated to be able to absorb them and in case of bankruptcy, it will contribute everything to solve the situation.
The countries of Europe They have different tax rules in areas that may in some way harm the volumes of deferred tax assets, for example, there are countries that have admitted that negative tax bases are offset with positive tax bases from past years, for that reason they have not been generated tax credits to be recovered in the future.
There are also countries that can be more generous than Spain in terms of their fiscal spending and provisions for loan losses.
In general terms, the banks are not in agreement with the new norm, this is because the nationalized entities are not satisfied with the new norm regarding tax credits, this is because it is thought that it can harm them in different aspects. This is because in the document that was authorized by the government itself, despite the fact that it was a negotiation with the sector for weeks, a detail has not been taken into account, which is that the transfer of assets was not done reciprocally.
That is why the three entities have not yet generated the deferred tax assets with the transfer of its toxic real estate assets to Sareb. The explanation given is that they had to make provisions to cover their losses due to these credit assets, land and real estate and they did the same in 2012, in which the transfer is of two assets, which is why they did not deferred tax assets were generated.
Will there therefore be an impact on public accounts?
If there will be a change in public accounts, but this is going to be temporary and very small. This is because in no case is it that public financing assumes the losses of the entities at the time that said rule comes into force, as we explained above, therefore, it is understandable to think that the effect of tax revenues will be real, but in a reduced way, so the impact will be much less than what many may expect. It is important that the information on this topic is always kept fluid in order to know about the fiscal situation of the country.