When fixing the threshold of Article 470 of Regulation (EU) No 575/2013 (CRR), must it contain the amount of the excess of deductions from Additional Tier 1 (AT1), caused by the transitional arrangements, which cannot be entirely deducted from AT1 - because this latter’s amount is not large enough in order to allow all the deductions - and which was subsequently deducted from Common Equity Tier 1 (CET1)?

Article 470 establishes how to set the threshold which will determine the deduction of Deferred Tax Assets that rely on future profitability and arise from temporary differences, as well as from significant holdings in financial sector entities during the transitional period. In the details of how this threshold should be calculated, Article 470 of the CRR refers to several points of Article 36(1) which captures the deductions over Common Equity Tier 1 (CET1), without including in that list the point (j) which contains the deductions that should be applied to Additional Tier 1 (AT1) that exceed the amount of available AT1 of the entity. Consequently, some of the deductions that should apply to AT1 and eventually exceed the available amount of AT1, are a consequence of the transitional arrangements. It is necessary to establish a criterion on whether this excess of deduction over AT1, which is due to transitional arrangements, has to receive the same treatment as the rest of the excesses of deductions over AT1 (without being considered in the calculation of the threshold of Article 470 of the CRR), or if it is considered that the transitional arrangement could not have taken place and therefore those excesses must be considered in the threshold computation. With the aim of determining the calculation on the threshold during the transitional period, and taking into account that C.04.00 captures the value of the threshold according to Article 48 of the CRR (without taking into account the transitional arrangements), it would be convenient to specify which cells of the COREP templates enable the calculation of the value of the threshold of Article 470.

According to Article 470(1) of Regulation (EU) No 575/2013 (CRR), relevant Common Equity Tier 1 (CET1) items, on which the two thresholds of 10% and 15% referred to in Article 470(2) are calculated, are calculated after applying the provisions of Articles 32 to 35 and making the deductions pursuant to points (a) to (h), (k)(ii) to (v) and (l) of Article 36(1), excluding deferred tax assets that rely on future profitability and which arise from temporary differences.

Excesses of deductions related to Additional Tier 1 capital which have to be deducted from CET1 in accordance with Article 36(1)(j) of the CRR do not have to be deducted when calculating the relevant CET1 items used for determining the two thresholds, regardless of whether they are due to transitional provisions or not.

See further Q&A 1740.

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.