Dáil Éireann Debate, Wednesday - 20 September 2023
173. Deputy Neasa Hourigan asked the Minister for Finance if his Department has any plans to review or revise the current deferred tax assets regime as it relates to large financial institutions with significant previous losses; and if he will make a statement on the matter. [40468/23]
View answerFor a number of years following the economic crash, there was a restriction on the use of losses carried forward by NAMA-participating institutions (AIB, Bank of Ireland (BOI), Anglo Irish Bank, Irish Nationwide Building Society and the Educational Building Society (EBS)), such that losses could be used to shelter only 50% of taxable profits in any given year, with any restricted amounts carried forward for use in future years.
At the time of the introduction of the restriction, contained in section 396C Taxes Consolidation Act 1997, the Government had limited direct participation in the banking system. However, by 2013, the State had acquired substantial holdings in the banking sector following the re-capitalisation of the banks and the restriction was considered to have outlasted its initial purpose to the point where it was deemed to be acting against the State’s interests.
The repeal of Section 396C in Budget 2014 reduced the State’s role as a ‘backstop’ provider of credit and shortened the time-frame over which the bank losses were likely to be used. It therefore put the institutions in a stronger position when being assessed by regulators and investors and reduced the risk of a future requirement for State support. It also protected the value of the State’s equity and debt investments in the pillar banks, and it therefore follows that there would be a material negative impact on the valuation of the State’s remaining bank investments if any change in the tax treatment of accumulated losses (DTAs) were to be introduced.
In addition, despite the scale of losses accumulated as a result of the crash, the banks have also been contributing to the Exchequer through the financial institutions levy (the ‘bank levy’). The bank levy was originally intended to apply for the period 2014 to 2016, but it was subsequently extended and amended on several occasions and has raised some €1.4 billion for the Exchequer since its introduction. While it is now due to expire at the end of 2023, I have announced that it my intention that the bank levy will be further extended, and the future scope and rate of the levy are being considered in advance of the upcoming Budget.
There have been proposals for the re-introduction of a limitation on loss relief for banks, and this has been discussed in detail in the Oireachtas on a number of occasions. I would first note that only AIB and BOI remain of the original five NAMA-participating institutions previously subject to Section 396C. Reinstating a NAMA-linked tax loss restriction would therefore impact only AIB and BOI. It also has to be noted that the State no longer has any shareholding in BOI, and has been repaid its full investment.
The reintroduction of a tax loss restriction of this nature could also have a number of negative impacts, discussed in some detail in a technical paper published on my Department’s website (see www.gov.ie/en/publication/436ff7-technical-note-on-the-potential-consequences-of-changes-to-the-treat/). These include considerations relevant to the capitalisation of the banks, consequential impacts for consumers, and the current and future value of the State’s remaining shareholdings.
State aid implications would also need to be considered, as a restriction focussed exclusively on the banking sector, or on the remaining NAMA participating institutions, would be a targeted measure.
For these reasons, a change to the tax treatment of bank trading losses is not currently under consideration.
