Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I thank Senator Ruane for speaking to these recommendations.

Recommendation No. 20 requests a report on a restriction of loss relief for banks. As Senators are aware, loss relief for corporation tax is a long-standing feature of the Irish corporation tax system and a standard feature of corporation tax systems in most OECD countries. It recognises that a business cycle runs over several years and that it would be unfair to tax income earned in one year and not allow relief for losses incurred in another.

There have previously been proposals for the reintroduction of a limitation on loss relief for banks, and this has been discussed in detail in the Oireachtas on a number of occasions. A detailed technical note on considerations relevant to a restriction of loss relief, both for banks and for companies generally, was prepared in 2018 by my Department for the Committee on Finance, Public Expenditure and Reform, and Taoiseach, and is available online.

Considerations set out in that paper include the difficulty of discriminating between industries, or individual entities within the same industry, in the use of loss relief, as state aid implications would arise in respect of such a targeted measure.

The reintroduction of a tax-loss restriction of this nature could also have a number of negative impacts, discussed in some detail in the published technical paper. These include considerations relevant to the capitalisation of the banks, consequential impacts for consumers, and the current and future value of the State’s remaining shareholdings.

It is important also to understand that the State has received value from the banks’ deferred tax assets through its share sales to date and through the current valuation of the remaining shareholdings. As of today, the value of the State's remaining shares in the banks is in excess of €5 billion. A restriction on the use of losses could damage the State’s credibility with investors and could negatively impact on future share sales.

For these reasons, a change to the tax treatment of bank trading losses is not currently under consideration and, as a detailed technical note has already been prepared and published on this issue, I do not accept the recommendation for a further report.

Recommendation No. 21 concerns a potential to link entitlement to use losses carrying forward to the cap on bankers’ pay. Regarding the cap and other restrictions on bankers’ pay, the Senator will be aware that, up to last year, Government policy on banking remuneration had remained unchanged since the financial crisis. The restrictions introduced at that time affected approximately 20,000 workers across the three banks in which the State has or had a shareholding, including junior staff. By last year, it had become clear that these restrictions were creating recruitment and retention problems for the banks involved.

The skill set required in the banking sector is evolving all the time, with the greatest demand for staff now arising in areas such as the digital economy, risk management, legal and compliance. These skills are in demand right across the economy, meaning that the banks are competing for this talent against companies which have more flexible and attractive remuneration structures.

Therefore, following the retail banking review in 2022, a decision was taken by my predecessor to ease some of the restrictions on bank pay. In the case of Bank of Ireland, a bank in which the State is no longer a shareholder, restrictions were removed in respect of contractual pay and the bank can make awards of variable pay up to but not exceeding €20,000 per annum along with offering fringe benefits. The State continues to have significant shareholdings in AIB and Permanent TSB, therefore while restrictions around variable pay up to €20,000 and fringe benefits have been removed for both of these banks, the total compensation cap of €500,000 per annum remains in place and remains under consideration.

It continues to be the Government’s policy to ultimately return the banks fully into private ownership. We have seen good progress in reducing our remaining shareholdings and, should market conditions allow, we will look assess further disposal options for both banks in 2024.