by João Sérgio Ribeiro, Professor of Tax Law, UMinho

▪

Introduction

The tax treatment of bank loan losses has been a controversial issue.  Banks generally want tax rules recognising loan losses to conform in a close manner to regulatory accounting, in order to obtain tax benefits from loss provisioning. Tax officials, on the other hand, often fear that accepting said close conformity for tax purposes will dramatically reduce corporate tax paid by banks.

Loan losses represent inevitable costs that banks have to bear in order to generate income. Therefore, these losses should be accepted as an expense for both tax and financial purposes. The fundamental question is, at the end of the day, when and how non-performing loan losses should be recognized as an expense for tax purposes.

Now, with the Covid-19 crisis and the most certain upsurge of non-performing loans, the topic gains added relevance. The tax treatment of non-performing loans varies greatly around the world, and the European Union is not an exception.
Continue reading “The tax treatment of non-performing loans, Covid-19 and the need for harmonisation at the European level” →