APRA has written to locally incorporated banks and insurers to confirm its position in relation to certain tax event call provisions in capital instruments under Basel III. APRA noted that Additional Tier 1 and Tier 2 capital instruments may only be callable at the initiative of the issuer within the first 5 years of issuance as a result of a tax or regulatory event.
APRA said that it will permit issuers to include provisions in the terms of capital instruments to the effect that, where the issuer is required by taxation law to withhold or deduct amounts otherwise payable to instrument holders, the issuer will make additional payments to ensure that these holders receive the amounts they would have received had no withholding or deduction been required. However, APRA said that any payment of additional amounts to instrument holders must be due to a change in taxation law that could not be anticipated at the issue date of the instrument.
[LTN 160, 20/8/14]