banking-sector

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# Banking Sector

## Banking Sector Tax & Accounting v0.1

## What this file is

A sector overlay for banks, neobanks, payment institutions, e-money institutions, and regulated financial holding companies. Loads alongside the country corporate income tax skill and addresses bank-specific items.

## Section 1 — Scope

This skill covers:

- **IFRS 9 / ASC 326 ECL** computation and tax interaction
- **Bank levies** (UK Bank Levy, EU Single Resolution Fund / DGS contributions, IRPS Italy, German bank levy, France contribution sur les établissements de crédit)
- **Capital adequacy interaction with tax** — DTA recognition under Basel III; phased prudential filters
- **Sector tax-specific items**:
  - Interest income / expense recognition (effective interest rate method)
  - Loan origination fees deferral
  - Securitisation tax treatment (SPV consolidation, look-through)
  - Treasury / hedge accounting and tax
  - Interchange and merchant services revenue
  - Trading book vs banking book classification
- **Country-specific bank taxes**:
  - UK Bank Levy (Finance Act 2011 Sch 19) — 0.10% of taxable bank balance sheet equity and liabilities
  - UK Bank Corporation Tax Surcharge — 3% additional CT on bank profits above GBP 100m (reduced to 3% from 8% in April 2023)
  - US BEAT (Base Erosion and Anti-Abuse Tax) — banks subject to BEAT at lower revenue thresholds
  - US §163(j) interest deduction limitation overlays
  - Italian IRES + IRAP banking sector rules

This skill does NOT cover:

- **Detailed Basel III/IV calibration** beyond high-level connections
- **Day-to-day VAT on financial services** (see country VAT skills with banking carve-outs)
- **MiFID / consumer protection compliance**
- **Anti-money-laundering operational compliance**
- **CRD/CRR/PRA specific reporting**

- **UK Bank Levy rate reference** — 0.10% of taxable bank balance sheet equity and liabilities  _(UK Bank Levy (Finance Act 2011 Sch 19))_
- **UK Bank Corporation Tax Surcharge reference** — 3% additional CT on bank profits above GBP 100m (reduced to 3% from 8% in April 2023)  _(UK Bank Corporation Tax Surcharge)_

## Section 2 — Key sector accounting differences (IFRS 9 vs ASC 326)

**[T1] See `ifrs-local-gaap-reconciliation.md` for the underlying difference catalogue.**

For banking specifically:

**IFRS 9 vs ASC 326 (CECL) comparison**  _([T1])_

| Item | IFRS 9 | ASC 326 (CECL) |
| --- | --- | --- |
| Loss model | 3-stage Expected Credit Loss | Current Expected Credit Loss — lifetime ECL from inception |
| Day-1 allowance | 12-month ECL only | Lifetime ECL (typically higher) |
| Significant increase in credit risk (SICR) | Threshold (typically 30-day past due rebuttable presumption + qualitative) | n/a in CECL but used for monitoring |
| Originated credit-impaired (POCI) | Effective interest rate based on lifetime expected cash flows; subsequent ECL changes through P&L | ASU 2022-02 conformed POCI treatment |
| Off-balance-sheet (loan commitments, financial guarantees) | Stage-based ECL | CECL |

## Section 3 — Tax treatment of loan loss provisions

**[T1] By jurisdiction (sample):**

**Tax treatment of loan loss provisions by jurisdiction**  _([T1])_

| Country | Treatment |
| --- | --- |
| **US** | Loan loss reserve deductible only for small banks (assets ≤ USD 500m) under §585; non-thrift banks use specific charge-off method (§166). ASC 326 CECL accounting does not flow through 1:1 to tax. |
| **UK** | General provisions not deductible; specific provisions deductible if linked to identifiable loss event and meets HMRC commercial test. IFRS 9 Stage 3 generally deductible; Stages 1/2 generally not |
| **Germany** | Allgemeine Risikovorsorge limited; spezifische Wertberichtigungen deductible when "objectively required" — pre-tax overlay |
| **France** | Provisions pour dépréciation generally deductible if probable and quantifiable |
| **Italy** | Banking sector loan loss provisions deductible on schedule (18% of book in year 1 historically; now reformed to align IRES treatment) |
| **Australia** | Specific loss provisions deductible; general not |
| **Canada** | Specific allowance deductible; general allowance non-deductible |
| **India** | Specific provisions allowed only to extent prescribed by RBI; bad-debt write-offs deductible |

- **DTA / Pillar Two note on book-tax difference** — Material book-tax difference creates substantial deferred tax assets (DTAs) for banks. Recoverability assessment under IAS 12 / ASC 740 critical — Pillar Two interacts as DTAs may recapture under the 5-year rule.  _([T1])_

## Section 4 — Bank levies and surcharges

### 4.1 UK Bank Levy + Bank Surcharge

- **UK Bank Levy rate** — 0.10% percent of taxable balance sheet equity and liabilities (reduced to 0.10% from 0.21% in stages, FA 2017)  _(UK Bank Levy (Finance Act 2011 Schedule 19) [T1])_
- **UK Bank Levy half rate on long-term funding** — 0.05% percent  _(UK Bank Levy (Finance Act 2011 Schedule 19) [T1])_
- **UK Bank Levy de minimis** — GBP 20bn balance sheet size  _(UK Bank Levy (Finance Act 2011 Schedule 19) [T1])_
- **UK Bank Levy filing** — HMRC bank levy return, due 9 months 1 day after period end  _(UK Bank Levy (Finance Act 2011 Schedule 19) [T1])_
- **UK Bank Corporation Tax Surcharge rate** — 3% percent on bank profits above GBP 100m (reduced from 8% effective 1 April 2023)  _(UK Bank Corporation Tax Surcharge (FA 2015 s.17 amended FA 2022) [T1])_
- **Surcharge applies in addition to standard CT** — Applies in addition to standard 25% CT  _(UK Bank Corporation Tax Surcharge (FA 2015 s.17 amended FA 2022) [T1])_
- **Effective rate on banking profits above threshold** — 28% percent  _(UK Bank Corporation Tax Surcharge (FA 2015 s.17 amended FA 2022) [T1])_

### 4.2 EU Single Resolution Fund (SRF) contribution

- **SRF contribution mechanism** — Ex-ante annual contributions under Regulation (EU) 806/2014 to fund bank resolution; calculated by the Single Resolution Board based on liabilities. Target level: 1% of covered deposits at SRF maturity (2024). Distinct from country deposit guarantee scheme (DGS) contributions.  _(Regulation (EU) 806/2014 [T1])_

### 4.3 EU Member State bank levies

**EU Member State bank levies**

| Country | Rate | Base |
| --- | --- | --- |
| **Germany** | EUR 410-1.6bn annually distributed across banks | Risk-weighted liabilities — Bankenabgabe |
| **France** | Contribution sur les établissements de crédit reformed; merged into SRF + national supplement | Risk-weighted exposures |
| **Italy** | Imposta straordinaria 2023 (40% on certain net interest gains) — converted to optional reserve contribution following ECB pushback | Net interest income excess |
| **Spain** | 4.8% on net interest + commissions (extraordinary 2023-2025; targeted "windfall" tax) | Spanish-source banking gross income > EUR 800m threshold |
| **Hungary** | Bank levy — 0.15% / 0.20% balance sheet thresholds | Liabilities |
| **Sweden** | Bank tax — 6% on liabilities; reduced 2024 | Total liabilities |
| **Belgium** | Bank levy on liabilities | Liabilities |
| **Netherlands** | Bankenbelasting — 0.044% short-term / 0.022% long-term liabilities | Liabilities |
| **Poland** | Bank levy 0.0366% per month (0.44% annually) | Excess assets above PLN 4bn threshold |

### 4.4 Deposit Guarantee Scheme (DGS) contributions

- **DGS contributions basis** — EU Directive 2014/49/EU. Country DGS funds ex-ante and ex-post contributions from member banks.  _(EU Directive 2014/49/EU [T1])_

## Section 5 — DTAs and Pillar Two interaction

**[T1]** Banks typically hold material DTAs from:
- IFRS 9 ECL (book in advance of tax)
- Pension obligations (book provisions in advance of tax)
- Deferred compensation
- Operating loss carryforwards
- Securitisation losses

From openaccountants/openaccountants, AGPL-3.0.

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