Dáil Éireann Debate, Tuesday - 26 July 2022
417. Deputy Richard Boyd Barrett asked the Minister for Finance the estimated full-year revenue that would be generated by disallowing historic losses (losses forward) as tax deductions for banks and insurance companies; and if he will make a statement on the matter. [41554/22]
View answerI am informed by Revenue that the annual research paper on Corporation Tax includes the most recent information in respect of losses forward and is published on its website at www.revenue.ie/en/corporate/documents/research/ct-analysis-2022.pdf.
As shown in Figure 5 of the publication, the amount of losses forward used for all companies in the financial and insurance sector is €1.3 billion for 2020 with an estimated tax cost of c.€165 million. It is not possible to provide a further sectoral breakdown between banks and insurance companies.
As the Deputy is aware, loss relief for corporation tax is a long-standing feature of the Irish corporate tax system and a standard feature of corporation tax systems in most OECD countries. It recognises the fact that a business cycle runs over several years and that it would be unfair to tax income earned in one year and not allow relief for losses incurred in another. Loss relief works by allowing a deduction for losses incurred in one accounting period against profits earned in another period.
It is not possible to quantify the estimated additional corporation tax revenue which could accrue from the introduction of a restriction on loss relief for banks and insurance companies, because it would require predictions about their future profitability. Changes to tax law are also generally made on a prospective basis, so any losses already in the corporation tax system would not typically be affected.
Should such a restriction be introduced, it could have knock-on implications for the cost of lending and deposits, and for the cost of insurance for consumers and businesses in Ireland. It could also be expected to decrease the value of the State’s remaining shareholdings in the banks, because tax losses forward are included as a “deferred tax asset” on a company’s balance sheet and any restriction would lead to write-downs in the value of those assets.
As regards Irish banks, it should also be noted that they do currently pay some Irish corporation tax, as the tax losses forward do not shelter profits made in all their corporate entities.
The Deputy may recall that, in 2018, Department of Finance officials produced a detailed technical note for the Committee on Finance, Public Expenditure and Reform, and Taoiseach on the subject of both bank losses and corporation tax losses more generally. This paper is available online at www.gov.ie/en/publication/436ff7-technical-note-on-the-potential-consequences-of-changes-to-the-treat/). It was further updated and re-circulated to members during the 2019 Finance Bill process.
