Tier 1 Capital under Basel III: Tax Issues

On 16 December 2010 the Basel Committee published "Basel III: A global regulatory framework for more resilient banks and banking systems" and on 13 January 2011, the Basel Committee published requirements for non-core tier 1 and tier 2 capital instruments to include loss absorption mechanisms which are triggered at the point of the relevant issuer’s "non-viability". Together, these two papers contain the full "Basel III" guidelines. The European Commission will use the Basel III guidelines as the basis for revising the Capital Requirements Directive to create "CRD IV", which will replace "CRD II" (which recently came into effect, on 31 December 2010). Basel III is required to be implemented by 1 January 2013.

Under the Basel III guidelines, tier 1 capital will need to equal at least 6 per cent. of a bank’s risk-weighted assets, of which 1.5 per cent. may be in the form of "Additional Tier 1 Capital".

The purpose of the below review is to consider, at a very high level, the tax issues associated with the main eligibility criteria for Additional Tier 1 Capital under the Basel III guidelines in a number of European jurisdictions.

We do hope that you find this review useful. If you have any questions on any of the issues raised or on issues associated with tier 1 capital generally, please do contact Henk Vanhulle,
(32) 2 501 9158.

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