Mick Wallace (Wexford, Independent)
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18. To ask the Minister for Finance his views on whether the legislation change which allowed the deferring of tax assets against future profits by banks is having a negative impact on the Exchequer; if his Department has carried out an analysis of the change since it was introduced in 2013; is he has considered reinstating legislation in the original rule that a bank could only write off 50% of these deferred tax assets against future profits; and if he will make a statement on the matter. [50873/17]

Joan Burton (Dublin West, Labour)
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23. To ask the Minister for Finance if his attention has been drawn to remarks by a bank (details supplied) that it would pay no corporation tax as a result of accumulated tax losses; and if he will make a statement on the matter. [50719/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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I propose to take Questions Nos. 18 and 23 together.

Under the Irish corporate tax regime, losses incurred in the course of a business are allowed to be taken into account in calculating the appropriate amount of tax due by companies.  Loss relief recognises the fact that business cycles run over a longer period than just a single year and that it would be inequitable to tax profits in one year and not allow loss relief in the next. 

Under the NAMA Act 2009 a new section – section 396C – was inserted into the Taxes Consolidation Act 1997. The provision limited the amount of prior-year losses that a NAMA participating institution could offset against trading profits to 50% of trading profit for each accounting period.  It should be noted that it did not disallow any tax losses from being utilised but instead lengthened the period over which they could be used.  

Reintroducing the previous restriction would mean the period of utilisation for the bank would be extended over a considerably longer timeframe. This would increase the likelihood that the bank’s auditors would seek a write down of the deferred tax assets, thereby reducing shareholders’ funds in the banks’ financial statements and its capital ratios.

Unfortunately it is not possible to estimate a precise value of this accounting write down, as it would be done on a bank-by-bank basis in agreement with the individual bank’s auditors. For the same reason we cannot estimate what the impact would be to capital ratios.

What we can estimate, however, is what the deferred tax asset represents as a percentage of each bank’s transitional core equity tier 1 ratio, as at 30 June 2017, before any such policy change.  For AIB it represents 3.7 percentage points of its ratio of 19.9%, for Bank of Ireland it represents 1.7 percentage points of 14.4%, and for PTSB it represents 2.3 percentage points of 17.1%.

If some or most of this benefit was removed from each bank’s capital ratio, I cannot say what the reaction would be from the regulator. That is a matter for the Single Supervisory Mechanism and it might vary by bank.  However at a minimum it might impact the quantum of dividends the State would expect to receive from these banks in the near term.

Rather than interfere with the deferred tax assets by changing tax policy, the Government has ensured a contribution from the sector by introducing a bank levy, payable since 2014, of approximately €150 million per annum.