The Dutch Tax Plan 2021 can have a major impact on the LACDT recoverability assessment of Dutch insurers, especially combined with the SII amendments.
Within Solvency II, the Loss Absorbing Capacity of Deferred Taxes (LACDT) is an adjustment that insurance companies can apply to lower their Solvency Capital Requirement (SCR). In order to make use of this, insurers need to substantiate that, in a recoverability assessment, the fiscal loss arising from the SCR shock can be recovered with taxable profits. On Budget Day ('Prinsjesdag'), Tuesday 15 September 2020, the Dutch government has set out the main features of the government policy for the coming parliamentary session, including the Dutch Tax Plan 2021 (Belastingplan 2021). This plan contains some adjustments that can have a major impact on the LACDT recoverability assessment of Dutch insurers, especially in combination with the recent Solvency II amendments.
The recoverability assessment for LACDT has constraints similar to those for the deferred tax assets, which are set out in IAS12 and by the local tax laws. The main difference is that LACDT arises from Solvency II and so in case of inconsistencies with IAS12 or local tax laws, Solvency II is leading.
On 18 June 2019, the amendments on the Solvency II Delegated Regulations were published, including amendments to Article 207 about LACDT. With these amendments, additional requirements to the LACDT substantiation became effective as per 1 January 2020. To highlight a few, insurers now need to take into account the following restrictions in their projection of future taxable profits: