Dáil Éireann Debate, Tuesday - 27 March 2018
75. Deputy Pearse Doherty asked the Minister for Finance if he will reverse the decision by the previous Government to allow bailed out banks carry forward 100% of losses for two decades in some cases. [13656/18]
Amharc ar fhreagraLoss relief for corporation tax is a long standing feature of the Irish Corporate Tax system and is a standard feature of all other OECD corporate tax systems. It allows for losses incurred in the course of business to be accounted for when calculating a business’ tax liabilities.
Section 396C of the TCA 1997 previously restricted losses for NAMA participating institutions to offset losses against 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 State’s substantial holdings in the banking sector (99.8% AIB and 15% of BOI at the time) it 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Section 396C was repealed to: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.
- 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 which effectively levelled the playing field.
To recognise the part that the banks played in the financial crisis, in 2013, the Government decided that the banking sector should make an annual contribution of approximately €150 million to the Exchequer for the period from 2014 to 2016. In Budget 2017, the payment of this levy was extended until 2021. It is anticipated that the bank levy could be expected to raise €750 million over five years.
As I have previously stated, I do not intend to change how tax losses are currently taxed 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 fulfil other objectives in respect of the Irish banking system. Concerns I have in making such changes include:
- A weakened capital position for each of the banks that we have an investment in.
- The valuation of our investments are likely to be materially impacted.
- Damage to our credibility in international markets
I would also note recent media reports regarding proposals to recommend legislation that would limit the use of tax losses in banks to a ten-year period. At the time local stockbrokers estimated that such a change would have a material negative impact on the value of both AIB and PTSB of 3% and 8% respectively which equates to a combined reduction in the value of the State’s holding in the two banks of over €300m.
