Corporation Tax Loss Relief is provided for by Section 396 of the Taxes Consolidation Act (TCA) 1997. It allows for losses incurred in the course of business to be accounted for when calculating a business’ tax liabilities. Loss relief for corporation tax is a long standing feature of the Irish Corporate Tax system and is a standard feature of Corporation Tax systems in all OECD countries.
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 as, due to the substantial holdings that the State had by that time acquired in the banking sector (99.8% AIB and 15% of Bank of Ireland at the time), the restriction 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Section 396C was repealed to reduce the State’s role as a ‘backstop’ provider of capital and to protect the existing value of the State’s equity and debt investments.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.
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.
There would be a material negative impact on the valuation of the State's investments from any change in tax treatment of accumulated losses where the banks are concerned. It is critically important to understand that the State is actually getting value today from these tax losses through our share sales.
Despite the scale of losses accumulated, the banks are contributing to the Exchequer through the financial institutions levy. 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 was anticipated that the bank levy could be expected to raise €750 million over five years.
At Committee Stage of Finance Act 2017, I agreed that my officials would produce a report on the effect of limiting tax reliefs on losses carried forward for banks, with the stipulation that the policy outlook I will adhere to is the maintenance of the bank levy. It is envisaged that this report will be submitted to the FinPer Committee in June 2018.