Pearse Doherty (Donegal, Sinn Fein)
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301. To ask the Minister for Finance the estimated value of deferred tax assets yet to be utilised by NAMA-participating banks; the Government’s policy towards corporation tax loss relief with respect to NAMA-participating banks where the State reduces or entirely divests its shareholdings in respective banks; and if he will make a statement on the matter. [35260/23]

Michael McGrath (Cork South Central, Fianna Fail)
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Section 851A of the Taxes Consolidation Act 1997 precludes the Revenue Commissioners from directly or indirectly disclosing taxpayer-specific information to third parties unless this is specifically provided for in legislation. Therefore, I can only refer to publicly available information.

The latest data available for the estimated value of the relevant banks’ deferred tax assets is from their 2022 annual reports. According to their year-ended 31 December 2022 financial statements, the deferred tax assets (DTAs) being held in relation to losses forward are as follows:

For a number of years following the economic crash, there was a restriction on the use of losses carried forward by NAMA-participating institutions (AIB, Bank of Ireland (BOI), Anglo Irish Bank, Irish Nationwide Building Society and the Educational Building Society (EBS)), such that losses could be used to shelter only 50% of taxable profits in any given year, with any restricted amounts carried forward for use in future years.

At the time of the introduction of this restriction, contained in Section 396C of the Taxes Consolidation Act 1997, the Government had limited direct participation in the banking system. However, by 2013, the State had acquired substantial holdings in the banking sector following the re-capitalisation of the banks – 99.8 per cent ownership of AIB and 15 per cent ownership of BOI. Due to the State’s substantial holdings in the banks, the restriction in section 396C was considered to have outlasted its initial purpose to the point where it was deemed to be acting against the State’s interests.

The repeal of Section 396C in Budget 2014 shortened the time-frame over which the bank losses were likely to be used. It therefore put the institutions in a stronger position when being assessed by regulators and investors and reduced the risk of a further requirement for State support. It also protected the value of the State’s equity and debt investments in the pillar banks, as investors give some value to the accounting and cash benefit provided by DTAs.

It therefore follows that there would be a material negative impact on the valuation of the State’s remaining investment if any change in the tax treatment of accumulated losses (DTAs) were to be introduced.

The Deputy will also be aware that, in recognition of the part that the banks played in the financial crisis, the financial institutions levy was introduced in 2013, delivering an annual revenue of approximately €150 million to the Exchequer from 2014. The levy was originally intended to apply for this three-year period only. However it has since been extended and amended on several occasions and is currently scheduled to expire at the end of 2023, therefore a review of the levy being undertaken by my Department this year.

Proposals to re-introduce a limitation on loss relief for the remaining NAMA-participating banks have been discussed in detail in the Oireachtas on a number of occasions in recent years. I would first note that only AIB and BOI remain of the original five NAMA-participating institutions previously subject to Section 396C. It also has to be noted that the State no longer has any shareholding in BOI, and has been repaid its full investment.

The reintroduction of a tax loss restriction of this nature could have a number of negative impacts, and these considerations are discussed in some detail in a technical paper published on my Department’s website (see www.gov.ie/en/publication/436ff7-technical-note-on-the-potential-consequences-of-changes-to-the-treat/). Firstly, it would mean the period of utilisation of losses for these banks would be extended over a considerably longer timeframe than currently anticipated. This would increase the likelihood that bank auditors would seek a write-down in the current value of the DTAs, which could put pressure on the banks’ balance sheets.

From a consumer perspective, increased costs and reduced competitiveness in the banks as a result of a restriction on loss relief could potentially lead to pricing increases or reduced services. This could have a negative impact on consumers – for example, through increased fees, increased mortgage interest rates, or reduced lending to Irish businesses – or on employment in the Irish banks if cost-cutting measures are required.

It is also important to understand that the State has received value to date for these tax losses, and is continuing to receive value today, through its share sales. The banks’ share prices recognise a certain value for the DTAs and, as such, the State receives value for the balance of tax losses as sell-downs complete. There would be a negative impact on the valuation of the State’s investment in the relevant banks from a change in tax treatment of losses carried forward. A change in policy with regard to loss relief 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.

State aid implications would also need to be considered, as a restriction focused exclusively on the remaining NAMA-participating institutions, or on the wider banking sector, would be a targeted measure.

For these reasons, a change to the tax treatment of bank trading losses is not currently under consideration.