Pearse Doherty (Donegal, Sinn Fein)
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106. To ask the Minister for Finance if the treatment of corporation tax loss relief with respect to a bank (details supplied) has or will change, given the State no longer has a shareholding in the bank; and if he will make a statement on the matter. [8980/23]

Michael McGrath (Cork South Central, Fianna Fail)
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I note that the Deputy’s question relates to a particular banking institution. However, section 851A of the Taxes Consolidation Act 1997 precludes the Revenue Commissioners from directly or indirectly disclosing taxpayer information to third parties unless this is specifically provided for in legislation. Therefore, neither Revenue nor I can comment on the tax affairs of any individual or company so I can only answer in relation to corporation tax relief for losses more generally.

As the Deputy is aware, loss relief for corporation tax is a longstanding 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 that it would be unfair to tax income earned in one year and not allow relief for losses incurred in another. Loss relief works by allowing a deduction for losses incurred in one accounting period against profits earned in another period.

The value of these tax losses to the State is realised through share sales, and any change in the tax treatment of losses forward would give rise to a negative impact on the valuation of the State’s remaining bank investments. The banks’ share prices recognise a certain value for the tax losses and, as such, the State receives value for the balance of tax losses sell-downs complete. As I announced in September 2022, the State has completed the sale of its shares in Bank of Ireland for a total of €841m. The government has now recovered almost €6.7 billion in cash from its €4.7 billion investment in and support for Bank of Ireland over the 2009-2011 period.

In 2018, Department of Finance officials produced a detailed technical note for the Committee on Finance, Public Expenditure and Reform, and Taoiseach on the subject of both bank losses and corporation tax losses more generally (see www.gov.ie/en/publication/436ff7-technical-note-on-the-potential-consequences-of-changes-to-the-treat/). The technical note considered in some detail the potential implications of restricting the use of losses carried forward, or the introduction of a specific time limit or “sunset clause” on loss relief, for Irish banks, for the wider banking sector, or for the corporate sector as a whole. Among other considerations, it examined the possible effect of such a restriction on consumers, with the probability that an increased cost base for the banks would be passed on to the consumer in the form of higher fees, higher interest rates on loans, or lower deposit rates.

It also noted potential negative consequences for the valuation of the State’s banking investments, and for capital levels in the banks with possible resulting regulatory impacts. It also considered potential effects on competition within the banking sector in Ireland, a factor of increasing relevance as banks have since left the Irish market. Taking all these factors into account, it is my view that it would be detrimental to Irish consumers and Irish taxpayers if a restriction were to be placed on the use of losses carried forward by the banks. Therefore, a change to the treatment of corporation tax relief for losses for the banking sector is not currently contemplated.