Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

Many charges have been made in the context of the amendment before us. The Minister, Deputy Donohoe, has never met with Capita.

Perhaps it would be helpful to the Chair of the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach, Deputy McGuinness, for me to let him know that I subsequently met representatives of Banking and Payments Federation Ireland and I put in place a structure, which I hope to be able to conclude soon, in which Members of the Oireachtas will meet members of the federation, which is composed of the banks and the service providers and if there are particular cases members of the public have brought to the attention of Members, they will be in the room with the right people to try to bring those matters to a conclusion. That is something on which I took the initiative some months ago. I hope to make an announcement in that regard in the coming weeks.

In response to the amendment, 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 to 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 off-set 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 all other OECD countries. It would be difficult to justify the taxation of business profits without also taking due account of business losses.

As Deputies are aware, under the NAMA 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 off-set 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. That was done against the backdrop of the introduction of the new capital rules under the EU capital requirements directive, CRD IV.

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 largely one of timing. This will be off-set 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 raise €750 million over five years. Therefore, I do not accept the proposed amendment.

On Committee Stage the Minister, Deputy Donohoe, agreed to provide a technical paper. He will consider a range of options, and they will be presented to the finance committee for it to consider. He has not committed in any shape or form to changing the current tax strategy in respect of deferred tax assets.

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