Pearse Doherty (Donegal South West, Sinn Fein)
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To ask the Minister for Finance the estimated once off saving for the Exchequer by abolishing the ability of incorporated bodies to claim trading losses against profits made in previous years for the purposes of tax returns. [38293/12]

Michael Noonan (Limerick City, Fine Gael)
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The availability of relief for losses incurred in a business is a well-established feature of the corporation tax regime, which is in recognition of the fact that a business cycle runs over several years and that it would be unbalanced to tax profits in one year and not allow losses in another. Under Irish tax legislation a company incurring a trading loss in an accounting year can carry that loss back for offset against profits in the immediately preceding year. The carry back of a trading loss is limited to one accounting year back and there must be profits in that year for the provision to be of use to a company. A trading loss in an accounting year may also be carried forward for offset against trading profits of the same trade in subsequent years.

I am informed by the Revenue Commissioners that the potential saving to the Exchequer, if future claims by incorporated bodies for losses to be offset against previous year’s profits were to be disallowed, would depend on the amounts of losses incurred by companies and the extent to which there are profits in the preceding accounting year against which such losses would otherwise be available for set-off. It is not possible to anticipate what these would be.

By way of illustrating this latter point, data from corporation tax returns for 2009 and 2010 (the latest years available) show that for 2009 the amount of trading losses carried back for offset against profits earned in a previous year was €868m while the comparable figure for 2010 was a much lower figure in the region of €445m. The actual saving to the Exchequer in respect of those years under the Deputy’s proposal would depend on the tax rate applicable to the profits of the companies concerned but assuming that this was the standard 12.5% rate, the savings under the proposal would have amounted to about €109m in 2009 and about €56m in 2010. The Deputy should note, however, that the estimated savings for 2009 and 2010 are not necessarily indicative of what the savings might be for future years. Also, since under the proposal companies could continue to carry forward losses for offset against future profits, the estimated Exchequer savings outlined would be temporary in nature.

I should add that losses incurred in a trade are a fact of business life and the provision of relief for such losses is a standard feature of our tax code and that of all other countries in the OECD. It would be difficult to justify taxing business income without taking due account of business losses.