John Curran (Dublin Mid West, Fianna Fail)
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155. To ask the Minister for Finance if the 2009 cap which applied to banks that had transferred assets to NAMA restricting their use of deferred tax assets to 50% of their corporation tax, which was removed in 2014, will be reintroduced; and if he will make a statement on the matter. [36540/18]

Paschal Donohoe (Dublin Central, Fine Gael)
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Section 396C of the Taxes Consolidation Act 1997 previously restricted the amount of losses, as incurred by a NAMA participating institution from its trading operations in prior years, which could be set off against trading profits in the current year. The relief was limited to a maximum of 50% of the trading profits for each accounting period. This restriction was removed in Finance Bill 2013 as it was considered to have outlasted its initial purpose. Due to the substantial holdings that the State had subsequently acquired in the banking sector (99.8% of AIB and 15% of Bank of Ireland at the time) it was deemed to be acting against the State’s interests. Section 396C was repealed to reduce the State’s role as a ‘backstop’ provider of capital and to improve the existing value of the State’s equity and debt investments.

Notwithstanding the losses carried forward it should be noted that the Irish banks do currently pay some Irish corporation tax, as the losses do not shelter profits made in all their corporate entities in Ireland. The banks are also contributing to the Exchequer through the financial institutions levy. To recognise the part that the banks played in the financial crisis, in 2013, the Government decided that the banking sector should make an annual contribution of approximately €150 million to the Exchequer for the period from 2014 to 2016. In Budget 2016, the payment of this levy was extended until 2021. The bank levy is expected to raise €750 million over those five years.

At Committee Stage of Finance Act 2017, I agreed that my officials would produce a report on the potential effect of limiting the provision of tax relief for losses carried forward for banks. This report has recently been provided to the Committee on Finance, Public Expenditure and Reform, and Taoiseach. The paper examines the potential re-introduction of the tax loss restriction for the NAMA-participating banks, among other options, and estimates that such a measure could potentially result in an annual Exchequer yield of approximately €111 million in respect of the remaining NAMA-participating banks, assuming no change to the bank levy.

The report also notes that a range of consequential impacts would have to be considered in connection which such a measure. A restriction targeted at some or all banks in Ireland could be expected to increase costs and/or reduce competition in the sector. This could have negative knock-on effects to the detriment of consumers, including mortgage holders, business borrowers and savers.

Such a change would have an impact on the capital position of the banks in which the State has a shareholding and the report estimates that an immediate reduction in value of the State’s shareholdings of in excess of €400 million could be expected to occur. It would also have the potential to damage the State’s credibility in the international markets, and this could have negative consequences for values achieved in future share sales.  

These factors would need to be considered carefully in framing future policy with regard to relief for trading losses in the banking sector.