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

Senators 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, or the introduction of a specific time limit or sunset clause on loss relief, for Irish banks, for the wider banking sector, or for 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 or lower deposit rates. The report noted potential negative consequences for the valuation of the State’s banking investments and for capital levels in the banks with possible resulting regulatory impacts. It also considered potential effects on competition within the banking sector in Ireland, a factor of increasing relevance as banks have since left the Irish market.

Taking all these factors into account, it is my view that it would be detrimental to Irish consumers and taxpayers if a restriction were to be placed on the use of losses carried forward by the banks. Notwithstanding the trading losses forward, the Irish banks have been paying corporation tax in recent years, as the tax losses forward are restricted in their use and do not shelter profits made in all their corporate entities. However, I would also note that as the three pillar banks each posted losses in their 2020 financial statements as a result of the Covid-19 pandemic, it is likely that limited corporate tax liabilities would have arisen for 2020 regardless of any offset of the banks’ historical losses.

Senator Higgins, in her recommendation, refers to the Credit Guarantee Act 2012. The 2012 Act was most recently amended in 2020 to provide for the Covid-19 credit guarantee scheme, a measure within the remit of the Department of Enterprise, Trade and Employment. This scheme facilitates up to €2 billion in lending to eligible businesses that have been negatively impacted as a result of Covid-19 in Ireland. The scheme offers a partial Government guarantee of 80% to participating finance providers against losses on qualifying loans to eligible SMEs and primary producers. The key purpose of the Covid-19 credit guarantee scheme is to support SMEs by improving their access to finance during these difficult times, and any further conditionality attached to the scheme could undermine this important objective. Given the level of analysis that has already been published, a further report on the matter is not merited. Therefore, I cannot accept the proposed recommendation.