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

The Deputies may recall that in 2018, my Department produced a detailed technical note for the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on the subject of both bank losses and corporation tax losses more generally. This technical note was published online and is still available. The technical note considered in some detail the potential implications of restricting the use of losses carried forward by the introduction of a specific time limit or sunset clause on loss relief for Irish banks, the wider banking sector and the corporate sector as a whole.

Among other considerations, it examined the possible effect of such a restriction on consumers with the probability that an increased cost base for the banks would be passed on to the consumer in the form of higher fees, higher interest rates on loans and lower deposit rates. It also noted the potential negative consequences for the valuation of the State’s banking investment and for capital levels in the banks with possible resulting regulatory impacts. It also considered the potential effects on competition within the banking sector in Ireland, which is an even more important issue now as banks have since left the market.

Taking all of these factors into account, it would be detrimental to consumers and taxpayers if a restriction was to be placed on the use of losses carried forward by the banks.

I also note that as the three pillar banks each posted losses in their 2020 financial statements as a result the Covid-19 pandemic, it is likely that limited corporate tax liabilities would have arisen for 2020, regardless of the banks historic losses. However, notwithstanding the trading losses forward, the Irish have been paying corporation tax in recent years, which is important to put that on the record of the Dáil, as the tax losses forward are restricted in their use and do not shelter profits made in all of their corporate entities.

To conclude, given the level of analysis that has been published, I do not believe that a further report should be published. I emphasise again that such a change in this area would ultimately affect the valuation of our banks and by affecting this valuation, in turn, will affect the value of our banks to lend, to employ, to invest in the future of our economy and to lend to allow more homes to be built.

The Deputy also compared the availability of this relief in our jurisdiction versus others. Again, I inform the Dáil that in many other jurisdictions, the tax system allows losses to be carried forward to be used to reduce taxable income from other income sources. Ireland’s loss relief system includes features that are more restrictive than in other countries, notwithstanding the fact that we do not have a cap or a sunset clause.

Ultimately, while I can understand the attractiveness of making this case and the political appeal of it, if this policy was to be implemented it would affect the value and the state of our banking sector and, in turn, that would be bad for households, for SMEs who depend on banks for lending, for investment and, ultimately, it would be damaging to our economy, to jobs and to investment in our country. For those reasons I do not support the proposal that is being put forward and given that this matter was looked at in a report by my Department only a few years ago, a further report is not merited.

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