Question ID: 364
Regulation Reference: Guidelines on loss-absorbing capacity of technical provisions and deferred taxes
Article: 103
Status: Final
Date of submission: 09 Jul 2015
Question
Is our reading of Guideline 9 in the Guidelines on the loss-absorbing capacity of technical provisions and deferred taxes correct in that:
1. the transfer of losses based on legally enforceable arrangements and probable availability in stressed conditions can be used as source for the recognition of deferred taxes as a result of the instantaneous loss, and
2. the value of deferred taxes recognised as a result of the instantaneous loss is maximised at the value which these taxes would have when being recognized at a stand-alone basis. And in order to recognise the tax losses, the undertaking could provide evidence that it is likely they will have current tax liabilities or future profits, OR agreements or arrangements for the transfer of taxable losses to another group company for payments or benefits receivable against which they could utilize the tax losses?
EIOPA answer
Guideline 9 describes how undertakings may recognise (contractual) arrangements for the transfer of profits or losses to another undertaking permitted under existing tax legislation. It states that undertakings ability to recognise agreements or arrangements for the transfer of taxable losses to another group company for payment or benefit receivable is capped at the amount that the transferring company could utilise itself if it did not transfer those losses.
Therefore, if an undertaking cannot provide evidence that it is likely to have current tax liabilities or future taxable profits against which it could utilise the tax losses, then it cannot recognise any LAC of DT in the Solvency Capital Requirement calculation, notwithstanding that they may receive payment for transfer of the tax loss to a group company. This is how Guideline 9 should be read and interpreted.