Opinion of the European Central Bank of 12 December 2025 on the taxation of financial institutions (CON/2025/41)
Date: 2025-12-12
Institutions: European Central Bank
Subjects: banking supervision, financial stability, monetary policy

ECB PUBLIC 

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 12 December 2025  

on the taxation of financial institutions  

(CON/2025/41) 

Introduction and legal basis 

On 23 October 2025 the European Central Bank (ECB) received a request from the Italian Minister of Economy 

and  Finance  for  an  opinion  on  certain  provisions  of  the  draft  Budget  Law  2026  concerning  the  taxation  of 

financial institutions (hereinafter the ‘draft law’).  

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  Articles  127(4)  and  282(5)  of  the  Treaty  on  the 

Functioning of the European Union and Article 2(1), sixth indent, of Council Decision 98/415/EC 1, as the draft 

law concerns, inter alia, rules applicable to financial institutions insofar as they materially influence the stability 

of  financial  institutions  and  markets,  and  the  ECB’s  tasks  concerning  the  prudential  supervision  of  credit 

institutions pursuant to Article 127(6) of the Treaty. In accordance with Article 17.5, first sentence, of the Rules 

of Procedure of the European Central Bank, the Governing Council has adopted this opinion. 

1. 

Purpose of the draft law 

1.1 

The  purpose  of  the  draft  law  is,  inter  alia,  to  amend  the  taxation  of  financial  institutions  to  increase 

government  revenues.  Some  of  the  provisions  of  the  draft  law  merely  amend  the  timing  of  taxation 

payments,  by  bringing  them  forward  in  practice;  while  others  increase  the  actual  tax  burden,  albeit 

temporarily.  The  draft  law  provides,  inter  alia,  for  a  specific  release  (hereinafter  the  ‘release’)  of  the 

reserves created by credit institutions as an alternative to the payment of the extraordinary contribution 

tax on credit institutions introduced in 2023 2. In this respect, the draft law introduces a substitute tax of 

27.5 % on the special reserves existing at the end of 2025 and 33 % on the special reserves existing at 

the  end  of  2026.  If  credit  institutions  do  not  exercise  this  release  option,  from  the  financial  year  that 

starts after 1 January 2028, any profit or reserve distributions would be presumed, for tax purposes, to 

derive first from those special reserves, triggering extraordinary tax treatment3 and a payment at a tax 

rate of 40 %4. 

1  

2  

3  
4  

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, ELI: http://data.europa.eu/eli/dec/1998/415/oj). 

See Article 26 of Decree Law no. 104/2023 (Decreto-legge 10 Agosto 2023, n. 104, Disposizioni urgenti a tutela degli 
utenti, in materia di attività economiche e finanziarie e investimenti strategici, pubblicato in Gazzetta Ufficiale n. 186 del 
10-08-2023) (hereinafter the ‘Decree Law’). 

See Article 20 of the draft law. 

Article 16 of the draft law also introduces an option to release tax-suspended reserves, applicable to all Italian companies. 
Those companies may opt to regularise revaluation surpluses, reserves or funds in suspension of tax that exist as at 31 
December 2024 and remain as at 31 December 2025. The exercise of this option requires payment of a substitute tax at 
a rate of 10 %, payable in four equal instalments. Once paid, the reserves become fully distributable and are released from 
tax suspension. The ECB understands that this option is not expected to have a significant impact on financial institutions. 

 
 
 
 
 
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1.2 

The  draft  law  introduces  further  fiscal  provisions  affecting  credit  institutions,  including:  (a)  the 

deductibility in five annual instalments, for corporate income tax (IRES) purposes, of write-downs for 

expected losses on first and second stage risk loans 5; (b) a 2 % increase in the regional tax on productive 

activities  (IRAP)  for  credit  institutions  and  financial  intermediaries  from  2026,  which  is  expected  to 
increase the fiscal burden on financial sector entities significantly 6; (c) deferred timing for the deduction 
of  certain  deferred-tax-asset  items 7;  and  (d)  tightened  limitations  on  the  deductibility  of  interest 

expenses 8. Moreover, the draft law introduces, for all companies, a minimum participation threshold of 

10 % to benefit from the exclusion of dividends from taxable income (the current fiscal regime provides 

for no threshold). 

1.3 

The draft law is not accompanied by an explanatory memorandum explaining its rationale. Furthermore, 

the technical documentation submitted to the Italian Senate on the draft law contains a summary of the 

main legislative provisions but no explanation of the rationale underpinning the draft law.  

1.4  Overall, the abovementioned measures are expected to raise the effective tax burden on the banking 

sector. 

2. 

General observation 

2.1 

The ECB adopted an opinion on the Decree Law introducing an extraordinary tax on credit institutions 9. 

Under  the  Decree  Law  an  extraordinary  tax  was  imposed  on  credit  institutions  subject  to  the  Italian 

banking  law  equal  to  40 %  on  the  2023  interest  margin  exceeding  by  10 %  the  margin  of  2021.  In 

addition,  in  the  Law  on  conversion  of  the  Decree  Law10  a  provision  was  included  to  the  effect  that, 

instead of making the payment, credit institutions had the option to allocate an amount not less than 

two-and-a-half times the tax due to a non-distributable reserve, established when approving the financial 

statements for the fiscal year preceding the one in progress as of 1 January 2024. The ECB understands 

that all credit institutions have chosen to exercise this option. As a result, the amount of tax revenues 

stemming from the extraordinary contribution was below expectations.  

2.2  While it is for Member States to design their tax regimes and distribute the fiscal burden, the recurring 

introduction of ad hoc tax provisions unduly increases policy uncertainty regarding the tax framework, 

damaging investor confidence and potentially also affecting credit institutions’ funding costs. In addition, 

perceptions  that  the  taxation  framework  is  uncertain  may  give  rise  to  extensive  litigation,  creating 

problems of legal uncertainty. 

3. 

Monetary policy context 

3.1  At the time the Decree Law was issued in 2023, the ECB, guided by its primary objective of maintaining 

5  
6  
7  
8  
9  
10  

See Article 19 of the draft law. 

See Article 21 of the draft law. 

See Article 22 of the draft law. 

See Article 33 of the draft law. 

See Opinion CON/2023/26. All ECB opinions are published on EUR-Lex. 

Legge 9 ottobre 2023, n. 136, Conversione in legge, con modificazioni, del decreto-legge 10 agosto 2023, n. 104, recante 
disposizioni urgenti a tutela degli utenti, in materia di attività economiche e finanziarie e investimenti strategici, pubblicata 
in Gazzetta Ufficiale della Repubblica Italiana n. 236 del 09-10-2023. 

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price  stability 11,  had  taken  determined  action  to  combat  euro  area  inflation  that  had  reached  record 

levels. To ensure a timely return of inflation to the 2 % target over the medium term, the ECB had raised 

its key policy rates at an unprecedented pace and had also stopped reinvesting proceeds from its asset 

purchase programmes’ portfolio, letting the Eurosystem balance sheet contract. In this context of rising 

policy and market interest rates and of still ample market liquidity, the euro area credit institutions saw 

a significant increase in their net interest income and profitability; this increase consisted essentially in 

a normalisation process after a long period of very low interest rates. 

3.2 

The context has changed since the issuance of the Decree Law, with implications for bank profitability, 

especially  in  Italy  (see  paragraph  3.3)  and  thus  for  the  transmission  of  monetary  policy  to  the  wider 

economy  (see  paragraph  3.4).  Inflation  gradually  declined  and  the  ECB  lowered  its  key  policy  rates 

between June 2024 and June 2025 before keeping them on hold as inflation and medium-term inflation 

expectations were stabilising at the 2 % target. While credit institutions remain well capitalised and still 

make  sound  profits,  the  changing  environment  alongside  the  easing  phase  of  monetary  policy 

necessarily led to a partial decline in their net interest income and profitability. Thus, the large positive 

effect of the preceding tightening phase of monetary policy on bank profitability, which had motivated 

the imposition of an extraordinary contribution on credit institutions under the Decree Law in 2023, was 

not  to  last.  The  net  effect  of  tighter  monetary  policy  on  bank  profitability  when  measured  across  the 

policy cycle was much less positive; the ECB’s opinion on the Decree Law had already considered this 

possibility 12, which then materialised. In this light, some of the provisions envisaged under the draft law 

to raise the effective tax burden on banks, both through an anticipation of tax payments, including via 

new rules on the deductibility of loan loss provisions, and through the introduction of new taxes, appear 

pro-cyclical and not in sync with the evolution of bank profitability. Such provisions would amplify the 

moderation of bank profitability in the current context. 

3.3 

In Italy, in particular, the dampening effect on profitability from the easing phase of monetary policy was 

faster than in the euro area on average, given the greater weight of short-term or variable interest rate 

loans within the balance sheets of Italian credit institutions. In theory, the negative income effect would 

in part be offset by larger lending volumes, a lower cost of funding and gains in the securities portfolio. 

However, the recovery in bank lending in Italy, which had contracted significantly during most of 2023 

and  2024,  has  been  subdued  since  then,  both  relative  to  the  euro  area  average  and  to  historical 

standards. The decline in bank funding costs has also slowed down and shown signs of stabilisation. In 

addition,  the  realisation  of  downside  risks  in  the  current  environment  may  significantly  reduce  the 

repayment capacity of borrowers at Italian credit institutions and translate into a further decline in bank 

profitability via increased provisioning needs. 

3.4 

From  a  monetary  policy  perspective,  credit  institutions  play  a  special  role  in  ensuring  the  smooth 

transmission of monetary policy measures to the wider economy. The provisions of the draft law would 

affect Italian credit institutions differently depending on their business models, and also increase their 

overall  tax  burden,  creating  potential  distortions  and  increased  heterogeneity  in  the  transmission  of 

monetary policy throughout the euro area. While credit institutions subject to Italian law are still in good 

11  
12  

See Article 127(1) of the Treaty.  

See paragraph 3.4 of Opinion CON/2023/26. 

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financial health and a first assessment of the impact of the draft law suggests that this would remain the 

case  after  its  adoption,  the  envisaged  increase  in  tax  pressure  could  come  at  the  expense  of  the 

provision of credit to the economy. This effect is aggravated by increased uncertainty in the taxation 

framework caused by the adoption of yet another new law on credit institutions, which undermines their 

ability to plan in an already uncertain current macroeconomic environment. The costs from increased 

taxes would thus lead credit institutions to tighten the conditions on which they finance the economy, 

either directly as they would pass on part of those costs to borrowers, or indirectly through the potential 

adverse effects on their capital positions resulting from a dampened profitability. The ability of individual 

credit  institutions  to  maintain  adequate  capital  positions,  to  continue  to  prudently  build  provisions  for 

potentially increased future impairments, and to set conditions on lending and other banking services 

vis-à-vis their clients in adequation with the ECB’s monetary policy, needs to be preserved. Curtailing 

this ability would undermine the smooth bank-based transmission of monetary policy measures to the 

wider  economy  and  adversely  affect  real  economic  growth13.  Caution  must  be  taken  in  particular  to 

ensure that increased tax pressure on credit institutions does not lead to abrupt adjustments to their 

lending to the real economy 14, especially given the already moderate levels of bank lending in Italy. The 

elements of procyclicality entailed in the draft law increase this risk of adverse lending adjustment. 

4. 

Financial stability context 

4.1 

The ECB has previously opined on draft legislation introducing taxes applicable to credit institutions in 

several Member States 15. It has, in this respect, underscored in general that imposing an extraordinary 

tax on the banking sector could make it more difficult for credit institutions to build up additional capital 

buffers, as their retained earnings will be reduced, making them less resilient to economic shocks. In 

effect, as underlined in paragraph 3, the additional tax on the release of the extraordinary contribution 

reserves, as well as the further fiscal provisions affecting credit institutions described in paragraph 1.2, 

would reduce their profitability directly and also indirectly, by reducing their ability to provide credit and 

thus engage in profitable business with customers. It is essential that credit institutions have a sound 

capital base in order for them to fulfil their role as credit intermediaries within the economy. A sound 

banking  system  is  essential  for  sustainable  real  economic  growth16.  Notably,  while  extraordinary 

contribution  reserves  comply17  with  the  conditions  set  out  in  Regulation  (EU)  No  575/2013  of  the 

European Parliament and of the Council18 for their inclusion among the elements of the Common Equity 

Tier 1 capital of credit institutions, their release would negatively affect or reduce the amount of Common 

Equity Tier 1 capital held by credit institutions. 

4.2 

The ECB has previously recommended, in respect of extraordinary taxes on credit institutions, that a 

13  

14  
15  
16  

See  paragraph  3.2.1  of  Opinion  CON/2010/62,  paragraph  2.1  of  Opinion  CON/2011/29,  paragraph  3.1  of  Opinion 
CON/2022/36 and paragraph 3.1 of Opinion CON/2023/9. 
See paragraph 2.2 of Opinion CON/2022/36 and paragraph 2.2 of Opinion CON/2023/9. 

See Opinions CON/2016/1, CON/2019/18, CON/2019/40, CON/2019/44, CON/2020/28 and CON/2023/26. 

See  paragraph  3.2.1  of  Opinion  CON/2010/62,  paragraph  2.1  of  Opinion  CON/2011/29,  paragraph  3.1  of  Opinion 
CON/2022/36 and paragraph 3.1 of Opinion CON/2023/9. 

17        See Article 26 of the Law on conversion of the Decree Law. 
18  

Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements 
for  credit 
(OJ  L  176,  27.6.2013,  p.  1, 
ELI: http://data.europa.eu/eli/reg/2013/575/oj). 

institutions  and  amending  Regulation 

(EU)  No  648/2012 

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clear  separation  is  necessary  between  the  extraordinary  nature  of  the  proceeds  and  the  general 

budgetary resources of a government to avoid their use for general fiscal consolidation purposes 19. 

4.3  As  also  noted  in  paragraph  3,  higher  net  interest  income  of  credit  institutions  can  initially  ensue  as 

interest rates increase. But increasing interest rates can also contribute to a higher cost of funding and 

eventual losses on outstanding bank securities portfolios. Moreover, in a long-term perspective, higher 

interest rates may negatively impact borrowers’ financial situations, thereby increasing credit risk and 

reducing  bank  profitability.  In  that  regard,  taxes  applicable  to  credit  institutions  may  put  additional 

pressure on their capacity to maintain a solid capital position or to rebuild buffers in an environment in 

which  profits  are  lower  and  (credit)  losses  may  occur.  These  different  factors  should  be  properly 

evaluated  in  order  to  ensure  that  credit  institutions  remain  well  positioned  to  absorb  potential  future 

losses20. 

4.4 

The  special  tax  regime  may  lead  to  fragmentation  in  the  European  financial  system  because  of  the 

heterogeneous nature of such taxes for the banking sector across Member States. The risk of double 

taxation  for  credit  institutions  that  also  operate  through  branches  in  other  jurisdictions  where  an 

extraordinary tax is also levied may be a further source of such fragmentation.   

4.5  Moreover,  some  provisions  of  the  draft  law,  such  as  those  regarding  the  deductibility  of  loan  loss 

provisions  and  interest  expenses,  may  affect  intermediaries  differently,  depending  on  their  business 

models, and have procyclical impacts. On the one hand, the increased cost of funding stemming from 

the limits to the deductibility of interest expenses may result in an increased cost of credit and/(or) a 

restriction on the  amount  of loans granted to the real economy. On the other hand, the limits  on the 

deductibility of loan loss provisions may amplify, during the negative phase of the economic cycle, the 

impact  on  banks’  profits  and  losses,  contributing  to  the  weakening  of  their  capital  position  and  the 

tightening of credit restrictions. 

4.6 

In the light of the above, the ECB recommends, in order to assess whether the draft law’s application 

poses  risks  to  financial  stability,  and  in  particular  whether  it  has  the  potential  to  impair  the  banking 

sector’s resilience and cause market distortion, that the draft law should be accompanied by a thorough 

analysis  of  potential  negative  consequences  for  the  banking  sector 21.  This  analysis  should  detail,  in 

particular, the specific impact of the release on credit institutions’  longer-term  profitability and capital 

base, access to funding and the provision of new lending.  

5. 

Considerations relating to the prudential supervision of credit institutions 

5.1 

The  ECB  understands  that  the  release  of  the  extraordinary  reserves  would  apply  to  both  significant 

credit  institutions  directly  supervised  by  the  ECB  and  less  significant  credit  institutions  directly 

supervised by national competent authorities under the oversight of the ECB within the framework of 

the Single Supervisory Mechanism. In this respect, the ECB stresses that the release will particularly 

affect  less  significant  institutions,  which  tend  to  be  more  concentrated  on  lending  activity,  while 

19  

20  

21  

See  paragraph  3.2.1  of  Opinion  CON/2010/62,  paragraph  3.1  of  Opinion  CON/2022/36,  paragraph  3.4  of  Opinion 
CON/2023/9 and paragraph 4.2 of Opinion CON/2023/26. 

See  paragraph  3.2  of  Opinion  CON/2023/9,  paragraph  4.3  of  Opinion  CON/2023/26  and  paragraph  4.2  of  Opinion 
CON/2023/45. 

See paragraph 3.4 of Opinion CON/2022/36 and paragraph 3.7 of Opinion CON/2023/9. 

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significant  institutions  tend  to  have  a  larger  proportion  of  fee-based  income.  However,  some 

intermediaries may now be in a different financial position than they were in 2023, and this additional 

burden could pose challenges. 

5.2 

The basis on which the release would be established does not take into consideration the full business 

cycle. As a result, the amount of the release might not be commensurate with the longer-term profitability 

of a credit institution and its capital generation capacity. As a result  of the general application  of the 

release, credit institutions that have lower solvency positions or are more focused on lending activity 

(such  as  small  banks)  or  have  challenging  capital  projections  could  become  less  able  to  absorb  the 

potential downside risks of an economic downturn. As noted in the ECB’s press release of 28 July 2023 

on  the  2023  stress  test22,  improved  capital  position  was  a  key  factor  in  helping  banks  stay  resilient 

amidst highly adverse conditions. 

5.3  Several provisions  of the  draft law – such as  the IRAP and the reduced deductions or exclusions of 

certain  items  from  taxable  income  –  are  expected  to  decrease  the  net  profits  of  the  Italian  banking 

system in the short term. While the Italian banking system is currently well capitalised, lower net profits 

result in reduced retained earnings, which are sustaining capital positions. The overall impact on credit 

institutions’  capital  positions  will  depend  on  how  they  respond  to  the  additional  tax  burden.  Credit 

institutions may choose to offset the levy by reducing planned capital distributions, thereby maintaining 

their capital positions, or they may proceed with their original distribution plans, which would erode their 

capital positions as a result of the new taxes.  

5.4 

The draft law proposes the deductibility in five annual instalments, for IRES purposes, of write-downs 

for  expected  losses  on  first  and  second  stage  risk  loans.  This  might  incentivise  credit  institutions  to 

postpone or lower the amount of write-offs recognised on stage 1 and stage 2 loans in years affected 

by the change in taxation as they become more costly compared to the current situation. This would 

increase the procyclicality of losses in the event of a downturn in the macroeconomic scenario. 

5.5 

The draft law proposes the reduction of the percentage of deductible interest from IRES to 96 % in 2026, 

97 %  in  2027,  98 %  in  2028,  and  99 %  in  2029.  This  might  have  negative  implications  on  credit 

institutions’ liquidity as it might prompt credit institutions to reduce the interest paid on deposits to lower 

taxes and hence reduce liquidity buffers. 

This opinion will be published on EUR-Lex. 

Done at Frankfurt am Main, 12 December 2025. 

[signed] 

The President of the ECB 

Christine LAGARDE 

22  Available on the ECB’s banking supervision website at www.bankingsupervision.europa.eu. 

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