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

Under the National Asset Management Agency Act 2009, a new section – section 396C – was inserted into the Taxes Consolidation Act 1997. The provision limited the amount of prior-year losses that a NAMA participating institution could offset against trading profits to 50% of trading profit for each accounting period. It should be noted that it did not disallow any tax losses from being utilised but instead lengthened the period over which they could be used. In 2013, I decided it was appropriate to remove the restriction on relief for losses in participating institutions, with effect from accounting periods beginning on or after 1 January 2014. This was done against the backdrop of the introduction of the new capital rules under the EU Capital Requirements Directive, CRD Four. The removal of the restriction has protected the carrying value of deferred tax assets at the banks in which the State has a significant stake, thus improving capital ratios under the new Basel III rules and consequently increasing the value of the State’s investment.

The removal of section 396C enabled the banks to absorb their losses over a shorter timeframe than would be the case with a 50% limit in place. Whereas corporation tax will not be payable on the banks' trading profits until their losses are fully absorbed, the net effect of the measure in terms of tax receipts is largely one of timing. This will be offset by an improvement in the valuation of the State’s equity stakes in the banks, as well as its debt investments, while the risk to the State as backstop provider of capital is also reduced.

In conjunction with the removal of section 396C, in 2013 the Government also decided that the banking sector should make an annual contribution of approximately €150 million to the Exchequer for the period from 2014 to 2016.

The banking sector should make a contribution of approximately €150 million to the Exchequer for the period 2014 to 2016. As part of budget 2016, I announced proposals to extend this levy to 2021 subject to a review taking place of the methodology used to calculate the levy. The new methodology has been included in this year's Finance Bill. Between 2017 and 2021, the levy is expected to raise €750 million, which reflects the significant role played by the banking sector in the economic crisis. Although significant trading losses carried forward are reported on the corporation tax returns submitted by covered banks, the timing of when these losses will be utilised will be determined by future profitability. The banks typically manage losses on a group basis in accordance with the group relief provisions provided for in the Taxes Consolidation Act 1997. While revenue for the banks may be protected by these losses in the short term, this position may change for later years as the relevant banks return to profitability. Therefore, I do not accept the proposed amendments.