Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

Loss relief is a standard feature of corporate tax regimes worldwide. Under the Irish corporate tax regime, losses incurred in the course of a business are allowed to be taken into account in calculating the appropriate amount of tax due by companies. Loss relief recognises the fact that business cycles run over a longer period than just a single year and that it would be inequitable to tax profits in one year and not allow loss relief in the next.

Under existing loss relief provisions in the tax Acts, any unrelieved trading losses of a company for an accounting period may be carried forward for offset against trading income of the same trade in future accounting periods. Alternatively, a company may claim to have the loss set off against profits of any description for the same accounting period in which the loss was incurred or of an immediately preceding accounting period of the same length. The provision of relief for such losses is a standard feature of our tax code and of the tax codes of all other OECD countries. It would be difficult to justify the taxation of business profits without also taking due account of business losses.

As both Deputies have acknowledged, 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, the Minister for Finance 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 new capital rules.

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. While 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 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. Rather than interfere with the deferred tax assets by changing tax policy, the Government has ensured a contribution from the sector by introducing a bank levy which has been payable since 2014. This provided an annual contribution of approximately €150 million to the Exchequer for the period from 2014 to 2016. In budget 2016, the payment of this levy was extended until 2021. It is anticipated that the bank levy will to raise €750 million over five years.

To deal with each of the amendments in turn, it is important to acknowledge that they are different even though they are grouped together. Deputy McGrath's amendment seeks to outline what the impacts could be of restricting loss relief, whereas the amendment tabled by Deputy Pearse Doherty seeks to examine what options there would be for going ahead and doing it. From a policy perspective the first amendment asks me to outline what the consequences would be of pursuing a policy while the second amendment more clearly reflects the view of Deputy Pearse Doherty that this is a policy direction the Government should take. The strong advice I have received is that any indication that we are going to change the taxation status of the deferred losses would have an effect on other objectives we are seeking to fulfil with the banks in terms of what we want the future capital position to be and the ability of the State to recover the investment the Irish taxpayer has made in those banks.

I do not have any intention of changing how we tax the deferred losses in the Irish banking system because I believe there would be consequences that would make it difficult for me to fulfil other objectives that the House and the Irish people want me to fulfil in respect of the Irish banking code. If the committee wants me to refer back to it at a later point and outline the consequences of such a policy action I am willing to do so. Deputy Michael McGrath asked me a direct question about the capital consequences of doing this. I do not have that information with me today. I have asked my officials to check whether such a piece of work has been done, so I will have to refer back to the committee on that. However, I wish to emphasise that from my perspective changing how we tax what are referred to as "assets" would have other consequences for which I would be held responsible by the committee. My firm view is that the medium-term response to how we deal with this issue is the maintenance of the bank levy. If the committee wants me to outline what would be the consequences of other courses of action I will do that.