Dáil Éireann Debate, Thursday - 10 November 2022
157. Deputy Pearse Doherty asked the Minister for Finance the effective tax rate applied to three banks (details supplied) in each of the years 2020 and 2021; his views on restricting their ability to reduce their corporate tax liability through historic losses in the context of heightened interest income and profitability; and if he will make a statement on the matter. [55909/22]
View answerIn relation to the Deputy’s query on the effective tax rate for the three banks, section 851A of the Taxes Consolidation Act 1997 precludes the Revenue Commissioners from directly or indirectly disclosing taxpayer information to third parties unless this is specifically provided for in legislation. Therefore, neither Revenue nor I can comment on the tax affairs of any individual or company.
As the Deputy is aware, loss relief for corporation tax is a longstanding 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.
The value of these tax losses to the State is realised through share sales. The banks' share prices recognise a certain value for the tax losses and as such the State will continue to receive value for the balance of tax losses as future sell-downs complete. There would be a negative impact on the valuation of the State’s investments in the banks from a change in tax treatment of losses carried forward.
Despite the scale of losses accumulated, the banks contribute to the Exchequer through the financial institutions levy. It should also be noted that loss relief does not shelter profits made by the banks in all their corporate entities.
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 (see www.gov.ie/en/publication/436ff7-technical-note-on-the-potential-consequences-of-changes-to-the-treat/). The technical note considered in some detail the potential implications of restricting the use of losses carried forward, or the introduction of a specific time limit or “sunset clause” on loss relief, for Irish banks, for the wider banking sector, or for the corporate sector as a whole. Among other considerations, it examined the possible effect of such a restriction on consumers, with the probability that an increased cost base for the banks would be passed on to the consumer in the form of higher fees, higher interest rates on loans, or lower deposit rates.
The technical note also noted potential negative consequences for the valuation of the State’s banking investments, and for capital levels in the banks with possible resulting regulatory impacts. It also considered potential effects on competition within the banking sector in Ireland, a factor of increasing relevance as banks have since left the Irish market. Taking all these factors into account, it is my view that it would be detrimental to Irish consumers and Irish taxpayers if a restriction were to be placed on the use of losses carried forward by the banks.
