Corporation Tax Loss Relief is provided for by Section 396 of the Taxes Consolidation Act (TCA) 1997. It allows for losses incurred in the course of business to be accounted for when calculating tax liabilities. Loss relief for corporation tax is a long standing feature of the Irish Corporate Tax system and is a standard feature of Corporation Tax systems in all OECD countries.
Section 396C of the TCA 1997 previously restricted NAMA participating institutions to offset losses against a maximum of 50% of taxable profits in a given year. At the time of its introduction the Government had limited involvement in the banking system. However, by Finance Bill 2013, this measure was considered to have outlasted its initial purpose. Due to the substantial holdings that the State had, by that time, acquired in the banking sector (99.8% AIB and 15% of Bank of Ireland), the restriction was deemed to be acting against the State’s interests.
Section 396C was repealed to reduce the State’s role as a ‘backstop’ provider of capital and to protect the existing value of the State’s equity and debt investments. With the removal of Section 396C, AIB and BOI were restored to the same position as other Irish corporates, including other Irish banks.
It is not possible to quantify the estimated additional corporation tax revenue from the measures referred to by the Deputy, as this would depend on the future profitability of the banks. Nevertheless, as I have previously stated, I do not intend to change how losses are currently treated for Irish banks, including those that were bailed out by the State, as I believe there could be consequences that would make it difficult for me to fulfill other objectives in respect of the Irish banking system. Such a change could have knock on implications for the cost of lending and deposits for consumers and businesses in Ireland. There would also be a material negative impact on the valuation of the State's investments from any change in tax treatment of accumulated losses where the banks are concerned.
It is important to understand that the State is actually getting value today from these deferred tax assets through our share sales. The banks are also contributing to the Exchequer through the financial institutions levy, introduced in 2013, which generates an annual yield of approximately €150 million to the Exchequer.
In 2018 my officials produced a report for the Committee on Finance, Public Expenditure and Reform, and Taoiseach on the potential consequences of changes to the tax treatment of losses carried forward for banks. This report, which contains further information and more detailed consideration of the points set out above, is published on my Department’s website.