The European Commission is considering an investigation into whether Greece, Italy, Portugal and Spain have illegally underwritten banks which have accumulated assets considered low-quality in the rest of the eurozone, the Financial Times reported.
The Commission is currently studying the information requested from member states to decide if a full probe is required, and a “conversation” was in progress between the member states and competition regulators in Brussels, according to the FT article.
Greece is a particular worry for regulators, as Athens says deferred tax assets represent some 30 to 40% of the core tier one capital in the country’s main banks. Overall, the four countries hold more than €40 billion in “deferred tax assets” – or bank losses that are offset against tax bills and insured by the government – according to ECB data published last year, the paper said.
In addition, another EU authority called the European Banking Authority (EBA) has started looking into whether deferred tax assets create an uneven playing field, the FT reported.
Last year, the EBA asked Greece to adjust a law that allowed its banks to boost their capital base by converting deferred tax assets into tax credits.
Representatives of the European Commission as well as the governments of Greece, Italy, Portugal and Spain could not be reached for comment outside regular business hours.
EU Competition Commissioner Margrethe Vestager said in an interview with the Financial Times last month that she and her team had not “made up our minds at all” about whether there would be a formal investigation into deferred tax assets.
Nicolas Véron, senior fellow at the Bruegel think tank, said that the key question determining whether the commission would launch formal action would be “whether the tax advantage resulting from the deferred tax assets is specific to the banking sector or whether it is sufficiently spread out across sectors to be considered a general tax measure.
“If an overwhelming share of the aggregate tax advantage goes to banks, then deferred tax assets may be considered state aid.”