Japanese Regulator Delays New Rules On Deferred Tax Assets In Banking Industry

by Mary Swire, Tax-News.com, Hong Kong

16 June 2004

Japan’s Financial Services Agency has reportedly decided to delay the introduction of new rules governing banks’ use of deferred tax assets in their capital base until after the fiscal year ending 2006.

According to Kyodo News, FSA officials feel that it is necessary to give the banks more time to dispose of bad loans before the government abolishes the full refund guarantee for deposits at the end of the fiscal year ending March 2005, thus giving them more financial flexibility in the meantime.

The new regulations are the result of concern by the Japanese authorities that some of the country’s largest banks have become over-reliant on unrealised tax credits, which are the result of an accounting rule allowing banks to book a loan loss as an expense before the tax department recognises the expense as deductible.

In response, the government established the Financial System Council to review the practice, and the advisory panel is shortly expected to issue a report which it has been predicted will urge the banks to reduce levels of deferred tax assets, which cannot be used to pay creditors in the event of a bank’s failure.

The FSA will then issue more detailed rules following the publication of the report, which is likely to take into consideration a plan by the Basle Committee on Banking Supervision setting new capital adequacy rules for 2006.

Recommended