Is the amount of deferred tax assets and liabilities relevant for the calculation of the amount to be deducted from Common Equity Tier 1 (CET1) according to Article 36(1)(c) of Regulation (EU) No. 575/2013 (CRR) to be determined based on the accounting values of deferred tax assets and liabilities as disclosed in the balance sheet?

According to Article 36(1)(c) of the CRR, deferred tax assets that rely on future profitability have to be deducted from CET1. According to Article 4(1)(106) and (108) of the CRR, deferred tax assets (DTA) and deferred tax liabilities (DTL) have the same meaning as under the applicable accounting framework; in Germany the German GAAP, Handelsgesetzbuch (HGB). With regard to the disclosure of deferred taxes on the balance sheet, institutions have - according to German GAAP - the discretion to apply two alternative approaches: 1. obligatory disclosure of a net surplus of DTL after netting gross DTA and gross DTL; optional disclosure of a net surplus of DTA after netting gross DTA and gross DTL, or 2. showing both the gross DTA and gross DTL on their balance sheet.

The amount of Deferred Tax Assets (DTA) to be deducted from Common Equity Tier 1 according to Article 36(1)(c) of Regulation (EU) No. 575/2013 (CRR) is the amount before any accounting netting (see Article 38(2) of the CRR). The only applicable netting rules for the purposes of this deduction are laid down in Article 38 of the CRR, in particular paragraphs 3, 4 and 5. The amount of net DTA calculated under the conditions of Article 38 of the CRR is independent of the relevant accounting framework (IFRS or national GAAP).

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.