Paul Murphy (Dublin South West, Socialist Party)
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11. To ask the Minister for Finance the total estimated cost to the Exchequer of granting the banks the ability to offset corporation tax on previous losses; the amount each bank is expected to gain from this measure; if consultations were held or if communication was exchanged between his Department and senior management in the banks regarding the decision to allow banks to offset losses against corporation tax; and if he will make a statement on the matter. [17578/15]

Seán Barrett (Dún Laoghaire, Ceann Comhairle)
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We have only a minute left. If Deputy Murphy forgoes his introduction, there will be time for the reply and possibly a short supplementary question.

Paul Murphy (Dublin South West, Socialist Party)
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Yes.

Michael Noonan (Limerick City, Fine Gael)
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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.

Paul Murphy (Dublin South West, Socialist Party)
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Does the Minister not consider it a bit obscene that the banks were bailed out to the tune of €64 billion, and they now get to count that bailout - those losses - as an asset on their balance sheets? Obviously, in the case of the nationalised bank it does not really matter, but from the point of view of Bank of Ireland, which has €1.2 billion in deferred tax assets, and the benefit to which on a yearly basis was doubled in the previous budget, it is not of benefit to the taxpayer but it is clearly of benefit to the banks. Did the banks unilaterally lobby for the change to take place before the Department contacted them? Is it the case that they are allergic to paying corporation tax and the Minister seeks to facilitate them?

Michael Noonan (Limerick City, Fine Gael)
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A factor in the decision to remove section 396C was that it improved the capital ratios under the new capital standards that were being introduced at the time under CRD IV. The rules under CRD IV, which came into effect on 1 January 2014 on a ten-year phased basis, meant that deferred tax assets in respect of trading losses would no longer be considered as tier 1 capital.

The repeal of section 396C shortens the timeframe over which the deferred tax assets are used. The deduction from capital required under the new rules is, therefore, less important. For example, following the repeal of section 396C, when forecasting bank capital ratios a few years out, they are higher than they would otherwise be.

Second, it reduced the risk to the State in its role of backstop provider of capital. Aside from an increase in the bank's capital ratios under the new rules, the change also improves the quality of bank capital, thereby putting the institutions in a stronger position when being assessed by regulators and investors. This reduces the risk of a future requirement for State support.

Third, it improved the existing value of the State's equity and debt investment in the banks. Most investors value banks off the new, more stringent capital rules or what is referred to as a fully loaded basis, in other words, capital when calculated when all the new CRD IV rules are taken on board. It stands to reason that the improvement in the capital levels of the banks following the removal of section 396C has a positive impact also on valuation of the State's investments.