Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

Section 396C of the Taxes Consolidation Act 1997 was introduced by the National Asset Management Agency Act 2009. It limits the amount of prior-year losses that a NAMA participating institution can offset against trading profits to 50% of the trading profit for each accounting period. Bank of Ireland and AIB are the two remaining participating institutions in existence. Given the extensive burden imposed on the State from rescuing the banks, section 396C was a measure that restricted the amount of loss relief that could be claimed by the banks in any one year. However, it was put in place at a time when State involvement in the banking sector was far more limited and, critically, before equity stakes were required in AIB and Bank of Ireland. Moreover, the rules governing bank capital have now changed and deferred tax assets arising from accumulated losses are treated far more harshly than they were, to the extent that they will be completely deducted from capital after ten years. Hence, with the State now owning 99.8% and 15% of AIB and Bank of Ireland respectively, and having substantial debt investments in these banks, this measure no longer serves its original purposes and actually works against the State's investment in the banks.

The section removes the restriction on relief for losses in participating institutions, with effect from accounting periods beginning on or after 1 January 2014. Hence it serves to put AIB and Bank of Ireland back in the same position as other banks, thus levelling the playing field while enhancing the capital ratios of the two banks.