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

Corporation tax loss relief is provided for under section 396 of the Taxes Consolidation Act 1997. It allows for losses incurred in the course of business to be accounted for when calculating the tax liability of a business. Loss relief is a long-standing feature of the Irish corporate tax system and is a standard feature of corporation tax systems in all OECD countries. It is available to, and claimed by, businesses in all sectors, not just those in the banking sector. In view of state aid rules, it is likely that any loss restriction would have to be broad-based, affecting all corporate entities, and this could have significant consequences across the economy.

As I have stated previously, I do not intend to change how tax losses are currently treated for Irish banks, either by means of a targeted restriction or a wider measure, because I am of the view that doing so would give rise to significant and negative consequences for the customer and for the Exchequer.

There would be an immediate and consequential negative impact as a result of the increased cost base for the banks being passed on to consumers in the form of higher fees, higher interest rates on mortgages and business and personal loans and-or lower deposit interest rates.

Among other consequences for the Exchequer, there would be a material negative impact on the valuation of the State's investments from any change in tax treatment of accumulated losses where the banks are concerned. It is critically important to understand that the State is getting value from those tax losses today through share sales. If we were to change our policy with respect to tax losses now, the State's credibility with investors would be damaged as it sold shares in the AIB initial public offering, IPO, on the basis that there were no plans to change this policy. It is worth noting that the banks are contributing to the Exchequer through the financial institutions levy introduced in 2013. In budget 2016, the payment of this levy was extended to 2021. It is anticipated that the bank levy could raise €750 million over five years.

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