Question ID: 2354
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Topic: Own Funds (OF)
Article: 15(3) of (EU) No 2015/35 Delegated Regulation
Template: S.02.01
Status: Final
Date of submission: 10 Nov 2021
Question
We have encountered a reporting issue which might need further clarification. The setting is as follows: - A solo undertaking has handed in its QRTs. - Within these QRTs, it states its deferred tax assets (R0040, C0010) and deferred tax liabilities (R0780, C0010) in template S.02.01 (balance sheet). - In template S.23.01 (own funds), it states a value for the figure „an amount equal to the value of net deferred tax assets“, both in total (R0160, C0010) and for tier 3 (R0160, C0050). - The entries (S.02.01, R0040, C0010), (S.23.01, R0160, C0010) and (S.23.01, R0160, C0050) are equal. We are wondering why the entries (S.02.01, R0040, C0010) and (S.23.01, R0160, C0010) are equal. Up to now, our understanding has been that (S.23.01, R0160, C0010) is always calculated as the numerical difference of the entries (S.02.01, R0040, C0010) and (S.02.01, R0780, C0010). The solo undertaking outlined that the values provided in S.02.01 ((S.02.01, R0040, C0010) and (S.02.01, R0780, C0010)) were netted according to IAS 12.71 and that this was consistently transferred to the template S.23.01. We are wondering which understanding is correct: i. The amount equal to the value of net deferred tax assets (S.23.01, R0160, C0050) is equal to the difference of deferred tax assets (R0040, C0010) and deferred tax liablities (R0780, C0010) in S.02.01. ii. The amount equal to the value of net deferred tax assets (S.23.01, R0160, C0050) is equal to the value of deferred tax assets (R0040, C0010) which already provide for a netted figure according to IFRS.
EIOPA answer
A netting of deferred tax assets and liabilities for determining the amounts to be presented in the solvency balance sheet (S.02.01, R0040 and R0780/C0010) has to be performed according to Guideline 9 on the valuation of assets and liabilities other than technical provisions, in line with IAS 12.71. Reporting netted deferred taxes implies that either R0040 or R0780 should be 0 except for the case where some deferred tax assets and deferred tax liabilities cannot be offset. The “amount equal to the value of net deferred tax assets" (S.23.01, R0160, C0050) therefore corresponds to the value of deferred tax assets in the solvency balance sheet (S.02.01, R0040, C0010). This is the amount requiring a demonstration that it is probable that future taxable profits will be available against which the deferred tax assets can be utilized (see Art. 15 (3) DR)) and thus reflects an own funds item of Tier 3 quality.