Opinion of the European Central Bank of 15 March 2017 on certain amendments to the deferred tax assets legal framework in Greece (CON/2017/7)
Date: 2017-03-15
Institutions: European Central Bank
Subjects: Greece, banking supervision, credit institution, financial stability, loss, national law, profitability, tax relief

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 15 March 2017  

on certain amendments to the deferred tax assets legal framework in Greece 

(CON/2017/7) 

Introduction and legal basis 

On  8  March  2017,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Greek  Ministry  of 
Finance  for  an  opinion  on  certain  draft  amendments  to  Articles  27  and  27A  of  Law  No  4172/20131  on 

deferred tax assets (DTAs) arising from debit differences (hereinafter the ‘draft amending provisions’). 

The ECB’s competence to deliver an opinion on the draft amending provisions is based on Articles 127(4) 

and 282(5) of the Treaty on the Functioning of the European Union and on the sixth indent of Article 2(1) 
of  Council  Decision 98/415/EC2,  as  the  draft  amending  provisions  relate  to  rules  applicable  to  financial 

institutions  insofar  as  they  materially  influence  the  stability  of  financial  institutions  and  markets.  In 

accordance  with  the  first  sentence  of  Article 17.5  of  the  Rules  of  Procedure  of  the  European  Central 
Bank, the Governing Council has adopted this opinion3. 

1.  

Background and purpose of the draft amending provisions 

1.1  Article 36(1)(c) and Article 38 of Regulation (EU) No 575/2013 of the European Parliament and of 
the  Council4  (hereinafter  the  ‘CRR’),  which  implements  Basel  III  standards5,  provide  that  DTAs 

relying on the future profitability of a credit institution are to be deducted from its Common Equity 
Tier  1  (CET1)  items,  subject  to  threshold  exemptions  and  transitional  provisions6.  Conversely, 

Article  39(2)  of  the  CRR  lays  down  the  requirements  under  which  DTAs  not  relying  on  future 

profitability and arising from temporary  differences shall  not be  deducted from  CET1 items  but to 

which a risk weight of 100 % is applied.  

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Article 27A of Law No 4172/2013 (FEK A 167/23.7.2013) was inserted by Law No 4302/2014 (FEK A 225/8.10.2014) 
and  was  further  amended  by  Law  No  4303/2014  (FEK  A  231/17.10.2014)  and  Law  No  4340/2015  (FEK  A 
134/1.11.2015). 

Council  Decision  98/415/EC  of  29  June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

See also Opinion CON/2014/66. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu 
Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  prudential 
requirements  for  credit  institutions  and  investment  firms  and  amending  Regulation  (EU)  No  648/2012  (OJ  L  176, 
27.6.2013, p. 1). 
See  ‘Basel  III:  A  global  regulatory  framework  for  more  resilient  banks  and  banking  systems’,  Basel  Committee  on 
Banking Supervision, December 2010, revised version June 2011. 
Article  48  CRR.  DTAs  that  rely  on  future  profitability  and  arise  from  debit  differences  are  subject  to  a  threshold 
exemption  whereby  only  amounts  above  a  particular  threshold  are  to  be  deducted.  Amounts  below  the  threshold 
shall be risk weighted. 

 
 
 
 
                                                 
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1.2  Article  27  of  Law  No  4172/2013  provides  that  losses  generated  by  the  business  of  an  eligible 

institution  (including  a  credit  institution)  may  be  carried  over  and  set  off  (amortised)  against  its 

profits over a period of five consecutive years. Article 27A makes certain types of DTAs eligible for 

conversion into tax credits and, assuming that all the conditions of Article 39(2) are met, not subject 

to deduction from CET1 capital of the respective institutions. Article 27A limits the scope of DTAs 

which must not be deducted from CET1 items to those accounted for as at 30 June 2015. 

1.3  The draft amending provisions seek to attain two distinct aims.  

First,  the  draft  amending  provisions  seek  to  provide  a  legal  basis  for  eligible  institutions  to  apply 

Article 39(2) of the CRR to DTAs related to non-performing loans (NPLs), linked to the temporary 

difference created owing to a different recognition in the applicable tax and accounting provisions 

when  the  NPL  is  written  off,  forgiven  or  sold  to  another  institution.  The  relevant  temporary 

differences  resulting  in  DTAs  shall  be  amortised  over  a  20-year  period.  In  particular,  the  draft 

amending provisions seek to ensure that, in the event of NPL write-offs, loan forgiveness or sales, 

the stock of DTAs that must not be deducted from CET1 items can be gradually reduced through 

the prescribed amortisation over 20 years. 

Second, the draft amending provisions seek to ensure that the maximum amount of DTAs not to be 

deducted  from  CET1  (DTAs/CET1)  is  gradually  lowered.  At  present,  the  maximum  amount  of 

DTAs/CET1  is  the  amount  of  the  income  tax  payable  by  a  credit  institution,  which  is  to  be 

calculated by multiplying the applicable tax rate by the eligible temporary differences accounted for 

as at 30 June 2015. By introducing a cap on the tax rate (the one applicable for the 2015 tax year) 

the  amount  of  DTAs/CET1  cannot  increase.  Additionally,  the  draft  amending  provisions  provide 

rules  to  reduce  annually  the  relevant  temporary  differences,  by  deducting  any  subsequent 

additional tax provisions linked to the relevant NPLs and also deducting, as explained above, the 

amortised  DTA/CET1  related  to  NPLs  that  are  written  off,  forgiven  or  sold.  Accordingly,  the  draft 

amending  provisions  seek  to  avoid  additional  State  aid  being  granted  and  to  ensure  the  gradual 

reduction of DTAs that are not to be deducted from CET1.  

1.4  The  amendments  to  Article  27  of  Law  No  4172/2013  are  to  take  effect  retroactively  (as  of  1 

January 2016), while the amendments to Article 27A thereof are to capture DTAs impacted in the 

2016  tax  year.  In  this  regard,  the  consultation  request  letter  states  that  the  adoption  of  the  draft 

amending  provisions  is  relevant  to  the  publication  of  the  annual  financial  statements  of  credit 

institutions in Greece for the 2016 tax year (currently scheduled for the second half of March 2017). 

2.   Observations on the draft amending provisions 

2.1  The ECB expects that the draft amending provisions will not affect the current legal basis for DTAs, 

meaning  that  if  the  DTAs  covered  by  the  draft  amending  provisions  previously  fulfilled  all  the 

requirements of Article 39(2) of the CRR, the new amendment to the tax law should not lead to a 

different  treatment.  This being  said, if in any circumstances  a lack of profitability is  observed,  the 

ECB expects that these DTAs are replaced with a direct claim on the Greek Government. 

2.2  The  ECB  understands  that  the  draft  amending  provisions  aim  to  adjust  the  accounting  and 

regulatory  framework  applicable  to  credit  institutions  in  Greece  so  as  to  better  enable  these 

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institutions  to  resolve  the  high  stock  of  NPLs  accumulated  by  credit  institutions  in  Greece  in  line 

with  the  non-performing  exposure  (NPE)/NPL  targets  agreed  by  Greek  banks  in  2016.  The  draft 

amending provisions aim  to reduce existing tax disincentives regarding the loan loss provisioning 

and  write-off  policies  of  credit  institutions  in  Greece,  as  required  under  the  draft  Supplemental 
Memorandum of Understanding between the Hellenic Republic and the European Commission7. 

2.3  The ECB notes that the draft amending provisions allow credit institutions in Greece to implement 

the agreed NPL resolution targets, while avoiding large reductions of their own funds, which would 

endanger financial stability. Without the draft amending provisions, which address tax impediments 

to  the  implementation  of  the  NPL  resolution  targets,  there  is  a  risk  that  the  capital  adequacy  of 

credit  institutions  would  be  jeopardised  by  the  timely  implementation  of  those  targets,  hence  the 

desirability and necessity of their adoption.  

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 15 March 2017. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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November 2016 version. 

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