Simon Harris (Wicklow, Fine Gael)

The restriction on the amount of loss relief available to NAMA-participating institutions, which was introduced by the National Asset Management Agency Act 2009, as Deputy Doherty correctly recalls, limited the offset of losses carried forward to a maximum of 50% of the trading profits for each accounting period. The cap only affected the timing of the relief; it did not affect the overall quantum of relief, with restricted losses in any given year being carried forward to subsequent years. The only remaining NAMA-participating banks are Bank of Ireland and AIB. As tax losses forward are included as a deferred tax asset on a company's balance sheet, this restriction meant those assets would have stayed on the bank's balance sheets for longer.

When the restriction was introduced in 2009, the Government had limited involvement in the banking system. However, by the introduction of the Finance Bill 2013, the State had acquired substantial shareholdings in the banking sector, specifically, 99.8% of AIB and 15% of Bank of Ireland. Furthermore, as a result of the EU's capital requirements directive, CRD, IV rules, deferred tax assets in respect of trading losses were no longer to be considered core tier 1 capital. Taking these factors into account, the restriction no longer served its original purpose and, indeed, worked against the Irish taxpayer. It created the risk that the accounting value of these tax losses could be reduced on foot of auditor recommendations, which would impact negatively on the State's equity investments. It increased the risk the State might have had to put more capital into one or more of the participating institutions as a result. That was the advice available to the Government of the day. The repeal of the loss restriction shortened the timeframe over which the losses were likely to be used and greatly reduced the deduction from capital required under CRD IV. It put the institutions in a stronger position when being assessed by regulators and investors and reduced the risk of a future requirement for State support.

Deputy Doherty asked a specific question about the length of time for which AIB intended to utilise the losses. The information available to me, according to the most recent financial statements for the year ending 31 December 2024, is that Bank of Ireland projected it to be utilised in full by the end of 2028, Permanent TSB in approximately 12 years and AIB in less than ten years. However, it should be noted that this is tied to growth and a decrease in growth will result in the utilisation period increasing by approximately one year. That is the latest information available to me.

As Deputies are aware, corporation tax relief is a long-standing feature of the Irish corporate tax system. It is a standard feature of corporation tax systems in most OECD countries. It recognises that a business cycle runs over several years and beyond and that tax income earned in one year will not allow relief for losses incurred in another. In 2018, officials from my Department produced a detailed technical note for the then Committee on Finance, Public Expenditure and Reform, and Taoiseach on the subject of both bank losses and corporation tax losses more generally. The technical note considered in some detail the potential implications of restricting the use of losses carried forward or the introduction of a specific time limit on loss relief as they might apply to Irish banks, the wider banking sector or, indeed, 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 consumers in the form of higher fees and interest rates on loans or lower deposit rates. It also considered potential effects on competition within the banking sector in Ireland, which is a factor of increasing relevance as banks have since left the Irish market. The paper also noted potential negative consequences for capital levels in the banks, with possible resulting regulatory impacts.

In the case of the banks, it is also important to acknowledge that the value of these tax losses to the State has been and will continue to be realised through share sales. The banks' share prices recognise a certain value for the tax losses and, as such, the State receives value for the balance of tax losses if share sales are completed. As we all know, the State retains approximately a 57.5% shareholding in Permanent TSB.

Reference was made to what other countries do. While other jurisdictions may have restrictions on loss relief, direct comparisons are of limited value. This is due to the tax system in Ireland being a scheduler system of taxation in which income and gains are divided into different categories based on resource. Under this system, losses carried forward can only be used against profits from the same source. In many other jurisdictions, the tax system allows losses carried forward to be used to produce taxable income from other income sources. Therefore, Ireland's loss relief system includes features that are more restrictive than in other countries, notwithstanding that we do not have a cap or a sunset clause.

I say all this in full acknowledgement that this was an extraordinarily painful time in our country for which many people - in fact, almost every person in every community in the country - paid a heavy price. Deputy Gould is right to remind us of the human cost and consequences of the failures of our banks in the past. The decisions made by Governments at that time, with the Deputy referencing from 2013 onwards, were guided by the best advice available, which was given to Governments by the Department of Finance and others, in terms of how to endeavour to provide some degree of protection to the taxpayer in what was a most horrifically difficult period.

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