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

The Deputy may be aware that section 396C of the NAMA Act 2009 was a provision which limited the amount of trading losses incurred by a NAMA-participating bank that could be set off against future trading profits. The offset was limited to 50% of the profit of the year. It did not disallow any tax losses from being utilised but instead lengthened the period over which they could be used. It is important to highlight that the provision to allow the carry-forward of tax losses for setting off against future trading profits is available not only for banks but for all Irish corporates. Accordingly, the removal of section 396C put the covered banks in the same position as other corporates, including other banks operating in Ireland, so it was a levelling of the playing field.

Section 396C was introduced as a form of clawback for the taxpayer. It was put in place at a time, however, when State involvement in the sector was far more limited and, critically, before equity stakes were acquired in AIB and Bank of Ireland.

In the lead-up to the introduction of the new capital rules on 1 January 2014 under CRD IV, and at a time when the State owned 99.8% of AIB and 14% of Band of Ireland, section 396C no longer served its original purpose and indeed worked against the taxpayer. Accordingly, in the Finance Act 2014, I decided it was appropriate to remove this provision. The factors informing this decision were as follows: it improved the capital ratios under the new standards that were being introduced at the time under CRD IV; it reduced the risk to the State in its role of backstop provider of capital; and it improved the existing value of the State's equity and debt investments in the banks. The net effect of the removal of section 396C in terms of tax receipts for the Exchequer is largely one of timing. Ultimately, it will not have an impact on the State's total corporation tax take over the long term.

As per their respective annual reports for 2014, the deferred tax assets relating to Irish tax losses were:

Finally, I can confirm for the Deputy that at the time of analysing the impact of the removal of section 396C, officials in my Department requested the banks to provide an estimate of the impact of such a move based on their respective financial projections, to assist this analysis.

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