Billy Timmins (Wicklow, Fine Gael)
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Question 147: To ask the Minister for Finance the discussions he has had with his EU counterparts regarding the proposal that European Union countries will be required to impose an up-front levy on banks, with the proceeds to be paid into national funds to insure against future financial failures under proposals to be unveiled shortly; if the taxpayer will again end up footing the bill through higher bank charges; and if he will make a statement on the matter. [22826/10]

Billy Timmins (Wicklow, Fine Gael)
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Question 178: To ask the Minister for Finance the position regarding a matter (details supplied); and if he will make a statement on the matter. [23256/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I propose to take Questions Nos. 147 and 178 together.

Discussion on the issue of how to ensure that the financial sector contribute to the cost of dealing with crises is underway in various fora internationally. In addition to the proposals from the European Commission referred to by the Deputy, which are set out in the Commission's Communication on Bank Resolution Funds, the IMF is also examining this issue, at the request of the G20 and is due to present its final report to the G20 in June this year. There is no particular consensus as yet as to the most appropriate form for a charge to the financial sector. Some countries, including Sweden, the United States, Germany, the United Kingdom and France, have also announced various types of charges including a stability fee, a financial crisis responsibility fee and a tax on bonuses.

The Commission's Communication sets out the Commission's proposals for the financial sector to contribute to the cost of managing the failure of a bank in the future but does not address the recoupment of costs arising from the current crisis. The Commission supports the establishment of ex ante resolution funds, funded by a levy on the banks to facilitate the managed failure of ailing banks in an orderly manner and suggests that a resolution fund should form part of the toolbox of measures available to Member States in an EU crisis management framework. The Commission is clear that shareholders and creditors must be first to face the consequences of bank failure. It is important to note that an objective of the Commission's proposal, in conjunction with its wider proposals on a crisis management system, is to mitigate the burden on the taxpayer arising from financial crises.

The issue of the financial sector contributions to the cost of financial crises has been discussed by Finance Ministers at EU level. The most recent meeting of ECOFIN on 18 May concluded that better mechanisms are needed to ensure that the financial sector bears the cost of resolution measures in a way that equitably reflects its responsibility and with a view to eliminating the need for the use of public funds, whilst preventing further moral hazard. Ministers acknowledged that further work is necessary, at EU and international level, on the design of the arrangements to mitigate systemic risk and better anticipate and defray the costs of a possible crisis, and the Council agreed some overarching principles to guide this work, including the importance of coordination.

With respect to the taxation treatment of bank losses, the position is that in general, companies can offset trading losses incurred in an accounting period by carrying those losses forward and using them to reduce trading income arising in a later accounting period. In the case, however, of the banking institutions participating in the National Asset Management Agency (NAMA) process, the NAMA Act 2009 inserted a new section 396C into the Taxes Consolidation Act which has the effect of restricting the amount of a participating institution's taxable trading income which can be reduced by losses carried forward, including losses arising from the NAMA process. The legislation limits the amount of trading income of a participating institution and all other participating institutions in the same group against which losses forward may be set off in any accounting period to 50 per cent of such income. The objective is to leave a portion of income in the tax net which would otherwise have been relieved by the use of losses forward. Unused losses can be carried forward indefinitely by companies until they are fully utilised and this remains the position both for institutions involved in the NAMA process and for companies generally.proposal.