Dáil Éireann Debate, Tuesday - 27 June 2023
213. Deputy Richard Boyd Barrett asked the Minister for Finance the full-year revenue that would be generated disallowing historic losses (losses forward) as tax deductions for banks and insurance companies; and if he will make a statement on the matter. [30996/23]
View answerI am advised by Revenue that information in respect of losses forward by sector for the most recent years available is published in Revenue’s annual report on Corporation Tax, available on the Revenue website at www.revenue.ie/en/corporate/documents/research/ct-analysis-2023.pdf
Data in respect of banks and insurance companies only is not available. However, Figure 5 in the Revenue paper shows the amount of losses forward claimed by banks and other financial institutions is €99.3 billion in the year 2021. Approximately €2.7 billion of this was used in that year giving rise to a tax cost of approximately €0.3 billion. Therefore, the annual yield from disallowing claims in respect of historic losses for banks and other financial institutions would be in the region of this amount, assuming no significant change in the financial performance of the entities concerned.
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. I would also note that changes to tax law are 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.
