Question ID:
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Own funds
33, 38
1, 3
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
not applicable
Disclose name of institution / entity:
Type of submitter:
Credit institution
Subject Matter:
Deferred Tax Assets and Liabilities related to the fair value reserves connected to gains or losses on cash flow hedges

In accordance with Article 33(1)(a) of the Regulation (EU) No 575/2013 of the European Parliament and of the Council (CRR), the institutions do not include the fair value reserves related to gains or losses on cash flow hedges in any element of Own Funds (as a result of the specific filter applied). Is it correct to not consider DTA / DTL related to the fair value reserves related to gains or losses on cash flow hedges in the net DTAs deductible from CET1?

Background on the question:

For accounting and logical consistency we believe correct to not consider in CET1 the related deferred taxes. The case can be summarized as follows. We consider the presence of a net reserve CFH equal to -70 (-100 gross Cash Flow Hedge accounting, 30 relative DTA). In the calculation of own funds for purposes of subparagraph d) of Article 26, we consider -70 as Other Comprehensive Income (OCI). Under the terms of Article 33, CFH reserves should not be included in own funds. Consequently, there shall be changed as follows the aggregate of own funds: +100, corresponding at CFH gross reserves; - 30 as reversal of the related tax assets. If we then proceed to re-compute this amount (30) in the calculation of the DTA to be made under Article 36, letter c), would become a duplication.

Date of submission:
Published as Final Q&A:
Final Answer:

Article 33(1)(a) of Regulation (EU) No 575/2013 (CRR) requires that institutions shall not include in own funds the fair value reserves related to gains and losses on cash flow hedges of financial instruments that are not valued at fair value, including projected cash flows. The purpose of this requirement is to neutralise the impact of the cash flow hedges on the own funds of institutions.

The value of the cash flow hedging instrument could increase or decrease, (for example, depending on the evolution of the reference interest rate in the case of interest rate hedges). This will have an impact on the cash flow hedge reserve. This will also have a fiscal effect; either a deferred tax liability or a deferred tax asset will be created.

In order to properly neutralise the impact of the cash flow hedge on own funds, the fiscal effect has to be neutralised as well. Therefore, any gains or losses arising from the changes in value of the cash flow hedges, and their associated deferred tax assets (DTAs) or deferred tax liabilities (DTLs) should be filtered from the own funds calculation under Article 33(1)(a).  See also Q&A 720 which states that prudential filters should be applied net of tax.

The DTAs and DTLs neutralised in that way should be excluded for the purposes of Articles 36(1)(c), 38(3) and 40 of the CRR. The DTAs that are filtered out in accordance with Article 33(1)(a) do not need to be considered among the deductions of Article 36 of the CRR and, consequently, also in the calculation provided for by Article 48 of the CRR. Conversely, the DTLs that are filtered out in accordance with Article 33(1)(a) should not be used to reduce amounts of DTAs to be deducted under Article 38(3). 

Final Q&A
Answer prepared by:
Answer prepared by the EBA.
Note to Q&A:

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.