Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael) | Oireachtas source

I thank Senator Black. The recommendation requests a report on the potential revenue implications for the State if a 50% limit on deferred tax assets was imposed. As Senators are aware, loss relief for corporation tax is a long-standing feature of the Irish corporate tax system and a standard feature of corporation tax systems in most OECD countries. It recognises the fact that a business cycle runs over several years and it would be unfair to tax income earned in one year and not allow relief for losses incurred in another.

A restriction on the amount of loss relief available to NAMA participating institutions was introduced in 2009. It limited the relief such that losses could be used to shelter only 50% of taxable profits in any given year. The cap only affected the timing of the relief; it did not affect the overall quantum, with restricted losses in any given year being carried forward to subsequent years for offset. The restriction was repealed in 2013. This was for reasons including protecting the value of the State’s investments in the banks as, by that stage, the State had acquired substantial shareholdings in the banking sector and a restriction on loss relief was considered to be working against the State’s interests. It was a very different time.

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 for banks and companies more generally was prepared in 2018 by the Department of Finance for the Joint Committee on Finance, Public Expenditure and Reform and Taoiseach. As far as I am aware, that remains available online. Considerations set out in that paper include the difficulty of discriminating between industries or individual entities within the same industry regarding 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, as discussed in some detail in the published technical paper. They include considerations relevant to the capitalisation of the banks and consequential impacts for consumers. It is also important to understand that the State has received value from the banks’ deferred tax assets through its share sales to date and the current valuation of the remaining shareholdings. A restriction on the use of losses could damage the State’s credibility with investors and negatively impact on future share sales. For these reasons, a change to the tax treatment of banks is not currently under consideration and a detailed technical note has been prepared and published on this issue. The Senator raised the bank levy. It is important to look over time at what the levy has generated and what is expected. The levy generated €93 million in 2020 and €64 million in 2021. The lower figure in 2021 was due to the exit of KBC and Ulster Bank. It is important to highlight the revised bank levy to apply in 2024. There was a public consultation on the future of that. The levy will now be charged at the rate of 0.112% of the value of deposits held by each liable bank on 31 December 2022. The annual target yield from the levy is now €200 million, which is considerably increased and is a considerable charge on the operation of banks.

For the reasons outlined in the 2018 paper and the broader reasons for the State’s participation with the banks over time, we cannot accept the recommendation.