March 2013 - Edition 92Genoteerd

Entry into force of the revised IFRS standard on accounting for pension liabilities

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existence of these differences does not seem logical

because the level of pension to be built up is already

known at the start of the accrual period.

This issue of Genoteerd analyses the consequences

of the entry into force of IAS 19R and discusses the

principal differences between IAS 19R and the Dutch

tax rules. It also makes some recommendations for

optimising the treatment of pension liabilities in a

1. Introduction

IAS 19R, the revised IFRS standard for the treatment

of pension liabilities in annual accounts, entered into

force on 1 January 2013. IAS 19R has significant

consequences for the equity position of, in particular,

listed companies with defined benefit schemes.1 Apart

from that, the entry into force of IAS 19R has an impact

on the differences between accounting for pension

liabilities in annual accounts and accounting for pension

liabilities under Dutch tax rules. At first sight, the

In this edition

• Introduction

• Accounting for pension liabilities under IFRS

Classification of pension schemes and treatment of defined benefit schemes

Existing rules: accounting for defined benefit schemes in annual accounts

IAS 19R

• Accounting for pension liabilities in tax balance sheet and profit and loss account

Forming a liability for pensions

Restriction on level of pension costs and pension liabilities

• Summary and recommendations

1 Listed companies within the EU are required by Regulation 1606/2002 to prepare their consolidated accounts in conformity with IFRS. Apart

from that, IFRS may be applied by unlisted companies and/or in relation to individual accounts by virtue of article 2:362 of the Dutch Civil

Code (CC).

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relatively simple. IAS 19 prescribes that an employer

must account for the pension premium due in a financial

year in relation to an externally administered pension

scheme in its profit and loss account. Apart from any

pre-paid premiums, the employer is in principle not

required to include any other liabilities on its balance

sheet in relation to a defined contribution scheme.

If a defined benefit scheme has been transferred to an

industry-wide pension fund and the relevant scheme

can be accounted for as a defined contribution scheme,

IAS 19 prescribes that in certain cases a liability must

be included on the company’s balance sheet. This is the

case, inter alia, if there is an agreement between the

industry-wide pension fund and its affiliated employers

setting out how any deficit in the fund is to be settled.

This is particularly important if an industry-wide pension

fund has been required to prepare a recovery plan

providing for the payment of temporary additional

premiums. However, the above situation only allows a

provision to be included in the employer’s accounts if

agreements have been made which make clear what

part of the payment relates to making good the pension

administrator’s deficit and for what period.

2.2 Existingrules:accountingfordefinedbenefitschemesinannualaccounts

The IASB is of the opinion that an employer runs

substantial pension risks if it has transferred its

obligations under a defined benefit scheme to a third

party. For this reason IAS 19 requires that an employer

which has transferred its defined benefit scheme to a

pension administrator has to include a pension provision

or receivable on its balance sheet. The amount of this

balance sheet item consists of four components. These

are, in order, the present value of the pension liability,

the value of the fund’s investments, positive or negative

actuarial results and past service costs. The employer’s

pension provision is determined by deducting the last

three of the above components from the value of the

pension liability.3

company’s annual accounts and in its profit and loss

account for tax purposes.

The layout of this issue is as follows. Accounting for

pension liabilities under IFRS is analysed in paragraph

2. Paragraph 3 considers accounting for pension

liabilities in conformity with tax rules. Paragraph 4

contains a summary and the principal recommendations

arising out of this issue. This issue does not consider

the valuation of self-administered pension schemes or

the valuation of pensions by pension administrators.

2. Accounting for pension liabilities under IFRS

2.1 Classificationofpensionschemesandtreatmentofdefinedbenefitschemes

Under IAS 19, the difference between a defined benefit

scheme and a defined contribution scheme is very

important to the way in which pension liabilities are

treated in a company’s annual accounts. The IASB

defines a defined contribution scheme as a scheme

under which the employer makes fixed payments to a

pension administrator and has no legally enforceable

obligation to make additional payments. A defined

benefit scheme is defined as any scheme which is not a

defined contribution scheme. This method of definition

means that pension schemes where the employer only

has limited pension risks, which is often the case in

the Netherlands, qualify as defined benefit schemes.2

If a defined benefit scheme has been transferred to

an industry-wide pension fund, then subject to certain

conditions this scheme can be accounted for as a

defined contribution scheme in the company’s annual

accounts. However, in the Netherlands the number of

companies that apply IFRS and have contributed their

pension benefits to an industry-wide pension fund is

limited.

The requirements under IAS 19 for accounting for

defined contribution schemes in annual accounts are

2 For this reason average salary schemes and final salary schemes in principle qualify as defined benefit schemes and ‘available premium

schemes’ (beschikbare premieregelingen) in principle qualify as defined contribution schemes.

3 For a more detailed explanation, see Dieleman, B,: ‘Tax vs corporate valuation of pension liabilities’, Fiscale Monografieën nr. 140, Kluwer

2012.

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Incidentally, the differences in the discount factors used

by different employers can also be relatively large, since

the exact discount factor depends partly on the ‘basket’

of corporate bonds selected by the employer. Moving

across to a different basket of corporate bonds does not

necessarily result in a change of system, because IAS

19 only requires the discount factor to be based on high-

value corporate bonds. For this reason it is advisable,

partly in view of the consequences of IAS 19R described

in paragraph 2.3 below, to reconsider the basis of the

exact discount factor used.

The level of an employer’s pension liability is limited

under IAS 19 by allowing actuarial gains and losses to

be deducted from the value of pension liabilities placed

with third parties via the so-called corridor method.

This is because IAS 19 provides that the difference

between pension liabilities placed with third parties and

the value of the fund’s investments does not have to be

accounted for on the balance sheet to the extent that the

cumulative actuarial gains and losses which have not

yet been set against the company’s profits are less than

the corridor. The corridor is 10% of the present value

of the pension liabilities or 10% of the fair value of the

fund’s investments. IAS 19 defines actuarial gains and

losses as the difference between the anticipated and the

actual annual changes in the pension liabilities and the

difference between the anticipated and the actual yield

from the fund’s investments. If and to the extent that

the corridor is exceeded, the actuarial gains and losses

have to be accounted for in the company’s profit and

loss account. However, they are only accounted for in

the financial year after the corridor has been exceeded.

They can also be spread across a number of years. The

number of years in which the excess over the corridor

has to be accounted for is based on the average future

working life of the employees. This enables actuarial

profits that are higher than the corridor to be spread out

over a period of twenty years. If an employer chooses

not to use the corridor method, then the actuarial

gains and losses can be accounted for in the ‘other

comprehensive income’ statement.

The corridor method has the consequence that part of

the pension surplus/deficit, i.e. the difference between

the pension liabilities placed with third parties and the

The pension liability is calculated on the basis of

the Projected Unit Credit method. This means that

first the total pension liability is calculated, including

anticipated salary increases. The total liability is then

divided evenly across the total years of service using a

specified discount factor. In determining the amount of

the pension liability, the employer has to take indexation

into account if there is an unconditional indexation or

a constructive obligation. There will be a constructive

obligation if indexation has been applied in previous

years and it can be assumed that this will also happen

in the coming years. IAS 19 in principle requires pension

liabilities to be discounted against the interest on high-

value corporate bonds.

It could be argued that the method of attributing

expenses to particular years under IAS 19 is not in line

with the accrual principle, one of the main doctrines

under IFRS. After all, because anticipated salary

increases have to be taken into account and the total

liability is evenly divided across the years of service,

the costs that have to be accounted for in the annual

accounts at the beginning of the period of pension

accrual are greater than the actual costs incurred in

that year. The IASB was possibly thinking particularly

of pensions under a final salary scheme in taking into

account anticipated salary increases, since in those

cases a salary increase in a particular year also works

through to pension rights that have been built up in

earlier years, but such pensions are no longer common.

The discount factor to be used under IAS 19 is relatively

high compared with the discount factor prescribed to

pension administrators by the Dutch National Bank,

which is based on the actual nominal interest. This

difference can be explained partly by the fact that

employers, unlike pension administrators, are required

to take into account anticipated salary increases and

this entails a degree of uncertainty. Despite this, the

IASB’s choice of a relatively high discount factor has a

major influence on the amount of the pension liability.

The reason for this is that this difference in the discount

factor can result in pension administrators having to

report substantial asset deficits, prepare recovery plans

and possibly reduce pension payments, even though

this does not show in the employer’s annual accounts.

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can be made by an employer in more than one year.

In such cases the scheme will nearly always be a

defined benefit scheme for which the employer has

to form a provision under IAS 19 for the total of the

pension liabilities transferred to third parties minus the

corresponding fund investments. This effectively already

takes into account the deficit in cover for the pension

fund, with the consequence that additional contributions

under a recovery plan do not result in an additional

provision being formed.

As some compensation for the abolition of the tax

reliefs for early retirement via the Tax Treatment of

Early Retirement (Amendment) and Life-Cycle Savings

Scheme (Introduction) Act, the legislator provided an

opportunity to utilise the scope which had not been

used over a number of years within the boundaries of

the Wage Tax Act 1964 to accrue maximum pension.

Employers could make a one-off transfer of these

extra pension rights to a pension administrator in the

form of an additional pension premium, but they were

also allowed to pay the extra liabilities retrospectively

pursuant to the Social Agreement Implementation

Resolution 2004. Under this resolution there is a

deadline of 15 years from 1 January 2006 for both

annual and retrospective payments.4 In such a case IAS

19R allows an employer to form a provision/additional

provision for pension rights which have been promised

but not yet transferred to a third party. Under IAS 19, a

provision can be formed in the year of the promise on

the basis of the present value of the total extra pension

rights.

According to IAS 19, periodic changes to the pension

liabilities must be split into two separate components

in the profit and loss account, i.e. interest costs and

service costs. Interest costs are the costs of the

increase to the pension liabilities because of the

passage of time, as a result of which the pension date

draws closer. Service costs are defined as the costs

of the increase in pension liabilities resulting from an

increase in the number of years of pensionable service.

fund’s investments, is invisible. Because the corridor

method is based on cumulative actuarial profits and

losses, it is also the case that actuarial profits of one

year can be offset against actuarial losses of another

year without this resulting in a change to the pension

liabilities. Fluctuations in the employer’s balance sheet

are thus limited. This was also regarded by the IASB

at the time of implementing the corridor method as

desirable, because of the long-term nature of pension

liabilities.

If the value of the fund’s investments exceeds the

present value of the pension liabilities, then IAS 19

requires a receivable to be included on the employer’s

balance sheet. IAS 19 prescribes that this pension

receivable cannot exceed the amount of the actuarial

gains and losses which have not yet been accounted

for in the annual accounts as at the balance sheet date,

the costs for past service periods which have not yet

been accounted for and the present value of the right to

recovery of the pension fund. The above does not apply

to the extent that actuarial gains and losses are fully

attributable to the relevant financial year.

The interpretation of IAS 19 issued by the IASB and

known as IFRIC 14 is important in relation to the right

of recovery, which can form part of the limit on pension

liabilities under IAS 19. IFRIC 14 provides that a

receivable relating to recovery can only be included in

the balance sheet if there is an unconditional right to

recovery. IFRIC 14 also prescribes that the amount of

the receivable has to be determined taking into account

any statutory minimum level of cover for pension

administrators. The receivable is then accounted

for on the balance sheet at present value. A right to

recovery may exist where, for example, an implementing

agreement provides that for certain investment yields

the employer has a right to a specified part of the yield.

Unlike recovery plans for industry-wide pension funds,

a recovery plan for a company pension scheme can

provide that additional contributions to the scheme

4 Resolution of 16 July 2005, Bulletin of Acts, Orders and Decrees 2005, nr 391.

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under IAS 19R the use of the corridor method is no

longer permitted. This has the consequence that the

difference between the pension liabilities and the

value of the invested pension premiums, including

actuarial gains and losses (which the IASB calls the

‘remeasurement’ in IAS 19R) has to be accounted for in

the ‘other comprehensive income’ statement. During the

discussions about comments received on the exposure

draft, consideration was given to accounting for actuarial

gains and losses in both the ‘other comprehensive

income’ statement and the profit and loss account, but

this is not reflected in IAS 19R.

As a consequence of the abolition of the corridor

method, an employer’s pension costs will fluctuate

more from year to year than has been the case until

now. From the perspective of the Netherlands, where

pension administrators are often independent of

employers, this is an undesirable development because

the employer will have to bear even more responsibility

for the poor financial position of an independent pension

administrator. That said, we can understand the IASB’s

decision to abolish the corridor method from the point

of view of the accrual principle and the intelligibility of

the annual accounts, because the IASB has an Anglo-

Saxon focus and in Anglo-Saxon countries an employer

is often completely responsible for the risks of a defined

benefit scheme that is administered externally. Another

important consequence of the abolition of the corridor

method is that the employer will have to include the

actuarial gains and losses that have been deferred in

past years in 2013 at the latest. Research has shown

that for companies with an AEX listing this results in an

average equity reduction of approximately € 800 million.

Prior to issuing the exposure draft, the IASB had

indicated that it wanted to radically overhaul the

difference between defined benefit schemes and

defined contribution schemes. This would have meant

that pension schemes where not all the risks lie with

the employee, such as defined contribution schemes

with a minimum return guarantee, would have been

regarded as a defined benefit scheme even sooner

The profit and loss account also includes the anticipated

profits on the fund’s investments, actuarial gains and

losses exceeding the corridor and past service costs.

It is also necessary to indicate whether and to what

extent the limit on pension receivables under IAS 19

has been exceeded. Any costs relating to transfers of

pension value are deducted from profits in the year in

which the transfer of pension value takes place. This

is important because employers may be confronted

with a requirement to make substantial additional

payments on a transfer of pension value. For the sake of

completeness, it should be noted that, according to IAS

19, for defined benefit schemes the pension premium

paid does not determine the amount of the pension

costs in the profit and loss account.

2.3 IAS 19RThe method of accounting for pension liabilities on a

company’s balance sheet and profit and loss account

that has applied under IAS 19 until now can best be

described as complex. The IASB itself shares this view.

It also considers that it is fundamentally not correct

to defer accounting for actuarial gains and losses

via the corridor method. The reason for this is that a

company’s equity would then not be correctly reflected

and its profits include elements which do not relate to

the relevant financial year. In order to tackle this issue,

the IASB published the exposure draft of IAS 19 at the

beginning of 2010. After receiving numerous comments

and criticisms and making some amendments to the

exposure draft, the IASB published the amended IAS 19

(referred to below as IAS 19R) in June 2011.5 Because

IAS 19R was approved by the European Commission

in June 20126, the relevant standard came into effect as

intended by the IASB on 1 January 2013. Consequently

IAS 19R applies to financial years commencing on or

after 1 January 2013.

According to IAS 19R.57, the starting position is that

an employer with a defined benefit scheme which is

externally administered must form a provision based on

the difference between the value of the pension liability

and the value of the fund’s investments. However,

5 IASB, Amendments to IAS 19, project summary and feedback statement, www.iasb.org. 2011.

6 Regulation 475/2012 of the Commission of 5 June 2012, Official Journal of the European Communities nr L.146/1.

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made in the implementation agreement concerning the

maximum pension premium payable. Incidentally, the

IASB has not laid down a universal calculation method

for calculating risk-sharing elements. Despite this, the

application of risk-sharing elements limits the extent of,

and fluctuations in, the pension provision or receivable,

which means that it is worth checking the extent to

which this opportunity can be utilised.

Under IAS 19R it is still possible to account for a defined

benefit scheme that has been transferred to an industry-

wide pension fund as a defined contribution scheme,

so that it is not necessary to form a pension provision

in accordance with IAS 19R 57. In fixing the pension

provision under IAS 19R, the employer will also have

to continue to take into account anticipated salary

increases. Earlier in this paragraph we indicated that

there were arguments under which the IASB could have

decided not to make it compulsory to take into account

anticipated salary increases any longer.

Apart from the fact that the corridor method no longer

exists, there is one other significant change to the way

in which pension costs have to be treated in the profit

and loss account under IAS 19R. This relates to income

and gains on fund investments. IAS 19R requires

pension liabilities to be discounted against corporate

bonds, whereas until now anticipated income and gains

have been used.

3. The treatment of pension liabilities in the tax balance sheet and profit and loss account

3.1 FormingaliabilityforpensionsWhere future expenditure is treated as a liability for

tax purposes, this generally does not give rise to much

discussion. The most important requirement is that there

must be a legally enforceable legal relationship as at

the balance sheet date. Apart from that, there must be

than has been the case until now. However, the IASB

has slightly expanded the definition of a defined

contribution scheme in IAS 19R as compared with the

current IAS 19. IAS 19R.28 provides that if an employee

in substance (the IASB uses the term ‘in substance’,

which has been interpreted by some as meaning ‘almost

entirely’7) bears the risks under a pension scheme,

the pension qualifies as being a defined contribution

scheme. Also, IAS 19R.29A provides that where the

stated aim under a pension scheme is to link the

pension to be accrued to salary in some way, this will

not by definition result in the pension scheme qualifying

as a defined benefit scheme. On the basis of the above,

it can be assumed that under IAS 19R a larger number

of pension schemes will qualify as defined contribution

schemes than is the case under IAS 19. It is therefore

worth checking whether a pension scheme may qualify

as a defined contribution scheme as a consequence of

the entry into force of IAS 19R.

Following the publication of the exposure draft of

IAS 19, both the legislator8 and the Annual Reporting

Council were heavily critical of the exposure draft.9 The

most important criticism was that the exposure draft did

not sufficiently take into account risk-sharing elements,

so that annual accounts would not accurately reflect

the reality.10 Partly because of this criticism, the IASB

indicated that the level of the pension provision in the

accounts would in some way have to be limited if the

risks run by an employer in relation to an externally

administered pension scheme have been limited by

statute. This point has been included in IAS 19R.92 by

stating that a pension liability must reflect, at most, the

maximum risk run by the employer. This means that,

inter alia, it is necessary to take into account the part

of the pension premium payable by the employee, so

that the level of the pension liability under IAS 19R.91

is limited to the part of the pension premium that is

actually borne by the employer. Apart from that, the

level of the pension liability is limited by any agreement

7 RvJ, RJ Statement 2012-01, Guide to the application of IAS 19R, www.rjnet.nl.

8 Parliamentary documents II 2010-11, 30 413, nr 150, Commentary on exposure draft IAS 19.

9 Incidentally, since 2010 the guidelines issued by the Annual Reporting Council on accounting for pension liabilities (RJ271) have no longer

been in line with the IFRS. IAS 19R therefore has no effect on RJ271.

10 RvJ, Commentary on exposure draft IAS 19, www.rjnet.nl 2010.

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no provision can be made in the tax balance sheet in

accordance with IAS 19R 57. In this respect it can be

concluded that the abolition of the corridor method will

often increase the absolute differences between the tax

and company law valuations of pension liabilities.

Where additional contributions are made pursuant to

short-term recovery plans for company pension funds,

there will often be a legally enforceable obligation. To

the extent that legal enforceability is lacking, the position

is that a provision can be formed for the additional

recovery payments if the requirements specified in the

Baksteen judgement are met. In general it is assumed

that these requirements will be met. This is because

recovery plans are a consequence of the investment

results in previous years, additional contributions are not

linked to future investment results and because these

contributions are costs relating to work carried out in the

past.

As regards additional payments under long-term

recovery plans, the State Secretary is of the view that

there is no reasonable degree of certainty that the

relevant payments will be made, with the consequence

that in that case it is not possible to form a liability.

Given the duration of long-term recovery plans, i.e.

fifteen years, this assumption is understandable. It is not

inconceivable that interim amendments may be made

to the long-term recovery plans, for example because of

an increase to the level of cover of pension funds. Apart

from that, employers will generally not want to commit

to making unconditional additional contributions for a

relatively long period of fifteen years.

3.2 Restrictiononlevelofpensioncostsandpensionliabilities

Contrary to the position under IAS 19R, pension

premiums paid by the employer to a pension

administrator can be included in the tax profit and loss

account regardless of whether the scheme is a defined

benefit scheme or a defined contribution scheme. The

principle of sound commercial practice could restrict the

a certain degree of certainty that the liability will actually

be met and the costs must be attributed to the profit/loss

of that year based on the principle of sound commercial

practice (goed koopmansgebruik).

In the Baksteen judgement the Supreme Court laid

down three conditions for forming liabilities for future

expenditure. Firstly, the expenditure must have its origin

in facts and circumstances occurring before the balance

sheet date. Secondly, the expenditure must be able

to be attributed to the period before the balance sheet

date. Thirdly, there must be a reasonable degree of

certainty that the expenditure will be incurred.11

The fact that a pension contract has to be transferred

to an independent pension administrator gives rise

to a legal relationship between the employer and

the pension administrator, with the tax consequence

that the payments due from the employer under an

implementing agreement are a deductible business

expense. Another tax consequence of transferring the

pension liability to a third party is that in principle the

employer cannot form a liability. The reason for this is

that in order for a liability to be formed, the requirements

mentioned in the two preceding paragraphs must be

met. If the pension liabilities have been transferred to a

third party, this will in principle not be the case, because

apart from the payment of the pension premiums there

is no legally enforceable obligation or reasonable

degree of certainty that there will be additional costs for

the employer.

As indicated in paragraph 2.3, under IAS 19R 57 an

employer with a defined benefit scheme (whether or

not the scheme is based on an enforceable obligation)

is required to form a provision based on the difference

between the value of the pension liabilities transferred to

a third party and the fund investments. However, for tax

purposes a liability can only be included on the balance

sheet if there is a reasonable degree of certainty that the

payments will be made. Since this degree of certainty

is lacking in relation to the provision mentioned above,

11 HR 26 August 1998, BNB 1998/409.

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4%.14 This effectively means that article 3:28 ITA 2001

has become outdated.

The legislator has introduced an exception to the non-

deductibility of anticipated past-service costs, which

has been contained in article 3:27 ITA 2001 since 2001.

According to this article, pension costs paid to a pension

administrator are fully deductible to the extent that

they include anticipated salary and price increase of a

maximum of 4% per annum and relate to pension rights

accrued by an employee for years of past service. One

of the requirements in order to qualify for the exception

under article 3:27 ITA 2001 is that the pension rights

must have been fully paid up15, which means that

for pensions which have already been promised the

premiums must actually have been paid.

As indicated above, the fact that pension administrators

apply a market interest of lower than 4% means that

part of an employer’s pension costs are not deductible

under 3:28 ITA 2001. However, during the parliamentary

discussions of what was then article 9b Income Tax

Act 1964, the promise was made that a market rent

of less than 4% would be permitted in combination

with salary and price increases of less than 4%, as

long as the balance of the market rent and the salary

and price increases remained at nil.16 In view of the

fact that the Dutch National Bank’s prescribed interest

rate for pension administrators has been considerably

lower than 4% since 2008, the above promise will (as

in previous years) be very important again in 2013 as

regards the deductibility of the part of the pension costs

relating to anticipated salary and price increases.

As discussed in paragraph 2.2, an employer may be

faced with having to make a substantial additional

payment on a transfer of pension value. The obligation

to make such a payment will in principle be determined

deductibility of the pension premium to the extent that it

has been paid in advance. Apart from sound commercial

practice, the deductibility of the premiums to be paid by

the employer to a pension administrator may also be

restricted by articles 3.26–3.28 Income Tax Act 2001

‘ITA 2001’).

Article 9a Income Tax Act 1964, the predecessor to

articles 3.26-3.28 ITA 2001, was introduced to restrict

the consequences of the Supreme Court’s judgement

in BNB 1972/26. In this judgement the Supreme

Court held that sound commercial practice allowed

anticipated past-service costs (comingbackservice) to

be taken into account in forming a liability for pension

liabilities.12 According to article 3.26 ITA 2001, the part

of the pension costs that relates directly or indirectly

to anticipated salary or price increases cannot be

deducted against profits in the year of payment. The

non-deductible pension cost has to be capitalised and

released pro rata over the years in which the salary

and price increases occur. Article 3.26 ITA 2001 applies

not only to anticipated past-service costs, but to all

anticipated salary and price increases, such as the part

of the pension premium that relates to indexation of a

pension under an average salary scheme.

Anticipated salary and price increases can be indirectly

taken into account via the discount rate. The legislator

also reached this conclusion and indicated that for an

actuarial interest rate of 4%, the percentage which at

that time was equal to the discount rate applicable to

pension administrators, it was assumed that salary and

price increases were not taken into account via the

discount rate. This promise was included in article 3:28

ITA 2001.13 In the year 2013 it should be noted that the

discount rate applicable to pension administrators is

based on the current nominal interest and since 2008

this market interest has been considerably less than

12 HR 8 December 1971, BNB 1972/26.

13 According to a recent judgment by the The Hague high court, a discount rate of 3,74% does not result in the assumption that there are

anticipated salary and price increases as well (The Hague high court, May 8 2013, LJN. CA1431).

14 Dutch National Bank, Summary of nominal yield curve, www.dnb.nl, 2011.

15 For a further explanation, see Dieleman, B, Tax versus company law valuation of pension obligations, Fiscale Monografieën nr. 140, Kluwer

2012.

16 Parliamentary documents II, 1974-1975, 13 004, nr 9, Memorandum of Amendments.

10

present value has to be determined on the basis of a

discount rate of 4%, in accordance with article 3:29 ITA

2001. This is different from the discount rate prescribed

by IAS 19R.

As indicated in paragraph 2.2, employers can form

a provision for extra pension rights that have been

promised under the Social Agreement (Implementation)

Resolution 2004. In this respect the State Secretary’s

view is that the provision has to be formed on a time-

apportioned basis (as it were) over a period of fifteen

years. However, in this connection the Haarlem District

Court has held that such provisions relate to future

expenditure deriving from events (in this case work

carried out) which occurred before 2006.19 On the

basis of this judgement, it is possible (for now) to form

a provision for tax purposes, as it is under IAS 19R,

on the basis of the present value of the total additional

pension rights that have been promised. Incidentally,

the Revenue Service has lodged an appeal against

the relevant judgement with the Amsterdam Court of

Appeal. In relation to the provisions mentioned above, it

should also be noted that if payments are not allocated

(or cease to be allocated) on a time-apportioned basis,

there will still be differences between the tax and

company law treatment of the additional pension rights

promised. This is because article 3:29 ITA 2001 requires

the pension rights to be converted to cash at a discount

rate of 4% and apart from that articles 3.26-3.28 ITA

2001 apply.

4. Summary and recommendations

In this issue of Genoteerd we have analysed the entry

into force of IAS 19R. We have concluded that the entry

into force of IAS19R, partly because of the abolition of

the corridor method, has considerable consequences

for annual accounts prepared on the basis of IFRS, but

also offers various new opportunities to optimise the

by the difference between the discount rate which the

transferring pension administrator has to apply and

the discount rate applied by the receiving pension

administrator. This means that the obligation is not a

result of anticipated salary and price increases, so that

its deductibility is not restricted by articles 3.26-3.28 ITA

2001.

The State Secretary is of the opinion that the tax

deductibility of additional contributions under short-term

recovery plans must be tested under articles 3.26-3.28

ITA 2001. In order to restrict the deductibility of these

contributions as little as possible, the State Secretary

has issued a resolution. This provides that additional

contributions under short-term recovery plans are not

subject to the requirement that pension liabilities must

have been fully paid up. With regard to the formation

of a provision for additional contributions to company

pension funds, a provision is allowed to be formed for

50% of the present value of the future payments without

the need for any further investigation of the chance that

the payments will actually be made.17

Even if additional contributions were to include

anticipated salary and price increases, the question is

whether the resolution mentioned above contributes to

the deductibility of the additional contributions. Before

many recovery plans were prepared, the level of cover

for pension funds was often well above the Dutch

National Bank’s required minimum of 105%.18 Because

of this, it cannot be argued with any vigour that the

payments for the relevant pension rights in those years

were insufficient. Leaving aside the condition that the

rights must have been fully paid up, the other conditions

in article 3:27 ITA 2001 will on balance not result in a

restriction on deductibility. It is therefore possible to

form a provision for the full present value of the future

contributions without the State Secretary’s approval, on

the basis of sound commercial practice. In this case the

17 Resolution of 16 October 2009, CPP2009/1227M, Government Gazette nr 16 538.

18 Dutch National Bank, Estimated level of cover for pension funds, www.dnb.nl. 2011.

19 Haarlem District Court, 15 March 2011, LJN BR6725.

11

treatment of pension liabilities in annual accounts. In this

connection it is recommended that companies should

review the basis of the discount rate used and explore

the extent to which risk-sharing elements can be used.

It is also worth considering exploring whether a pension

scheme can qualify as a defined contribution scheme

under IAS 19R.

In this issue we have also concluded that the differences

between IAS 19R and the tax rules after 1 January

2013 remain considerable and may increase in an

absolute sense. The reason for this is that for tax

purposes, contrary to the position under IAS 19R, the

pension premium paid forms the basis for the pension

costs in the profit and loss account. Apart from that,

the tax deductibility of pension premiums may be

restricted, partly because of legislation that has become

outdated. With regard to the tax rules, opportunities

exist in relation to provisions relating to recovery plans

for pension funds and provisions relating to additional

pension rights that have been promised.

12

GenoteerdGenoteerd is a periodical newsletter for contacts of

Loyens & Loeff N.V. Genoteerd has been published

since October 2001.

The author of this issue is B. Dieleman

(bas.dieleman@loyensloeff.com).

This newsletter is also available in electronic form, in

both Dutch and English. Orders/additional orders can be

obtained via communicatie@loyensloeff.com.

EditorsM.W. den Boogert

E.H.J. Hendrix

A.N. Krol

W.J. Oostwouder

A.J.A. Stevens

A.C.J. Viersen

D.F.M.M. Zaman

A.G. Wennekes

You can of course also approach your own contact

person within Loyens & Loeff N.V.

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