Global BCM tax newsflash: The latest tax and regulatory developments on the Capital Requirements Directive IV

The most recent meeting of the Council of the European Union resulted in the general support of the latest political trilogue with the European Parliament of the “CRD IV” package, which focuses on capital requirements for banks and investment firms but also includes tax transparency requirements for banks.

Council of the European Union – March 2013
On 5 March 2013, the Council of the European Union broadly endorsed the CRD IV proposal which is intended to be the EU law translation of the international agreement known as Basel III, which was approved by the G20 in general terms in November 2010. Technical issues are expected to be negotiated throughout March, with the goal of reaching agreement and signing a final deal at a closing trilogue at the end of the month. CRD IV represents another effort to avoid a recurrence of the recent financial crisis by addressing perceived regulatory deficiencies contributing to the impact and breadth of the crisis.

The CRD IV package, as it is known, includes provisions intended to amend and replace current capital requirements directives through: (1) a regulation creating prudential requirements which institutions must comply with and (2) a directive covering access to deposit-taking activities.

In addition to capital and liquidity requirements, the directive will now also have a strong focus on governance, including remuneration and transparency, which will be of significant relevance from the perspective of the tax function.

The proposed changes need to be seen in conjunction with proposed new tax regulation as suggested e.g. by the BEPS paper issued recently by the OECD as well as with increased public attention to whether companies pay “their fair share” in any jurisdiction in which they operate. Beginning in 2014, institutions must publically disclose:

  • The number of employees and
  • Net banking revenue.

Concurrently, profits, taxes paid and subsidies received must be disclosed by all European G-SIIs and O-SIIs to the Commission. This reporting will be implemented to enable the European supervisory authorities to support the Commission in the analysis of this data to determine the economic impact of such disclosures.

The term “net banking revenue” has not been defined by the directive. Thus, the regulator could make reference to local GAAP or international accounting standards or even provide its own reporting standard.

Whether the wording “taxes paid” implies that only cash taxes will be included in the reporting remains to be seen. There is also no indication if “above the line” taxes, such as irrecoverable VAT, will be subject to the reporting.