Michael McGrath (Cork South Central, Fianna Fail)
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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 the restriction, contained in section 396C 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 and the restriction 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 reduced the State’s role as a ‘backstop’ provider of credit and 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 future requirement for State support. It also protected the value of the State’s equity and debt investments in the pillar banks, and it therefore follows that there would be a material negative impact on the valuation of the State’s remaining bank investments if any change in the tax treatment of accumulated losses (DTAs) were to be introduced.

In addition, despite the scale of losses accumulated as a result of the crash, the banks have also been contributing to the Exchequer through the financial institutions levy (the ‘bank levy’). The bank levy was originally intended to apply for the period 2014 to 2016, but it was subsequently extended and amended on several occasions and has raised some €1.4 billion for the Exchequer since its introduction. While it is now due to expire at the end of 2023, I have announced that it my intention that the bank levy will be further extended, and the future scope and rate of the levy are being considered in advance of the upcoming Budget.

There have been proposals for the re-introduction of a limitation on loss relief for banks, and this has been discussed in detail in the Oireachtas on a number of occasions. I would first note that only AIB and BOI remain of the original five NAMA-participating institutions previously subject to Section 396C. Reinstating a NAMA-linked tax loss restriction would therefore impact only AIB and BOI. 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 also have a number of negative impacts, 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/). These include considerations relevant to the capitalisation of the banks, consequential impacts for consumers, and the current and future value of the State’s remaining shareholdings.

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

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

Michael McGrath (Cork South Central, Fianna Fail)
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Building on the original OECD Base Erosion and Profit Shifting (BEPS) project, in October 2021 Ireland, along with almost 140 other countries in the OECD/G20 Inclusive Framework on BEPS, agreed a two-pillar solution to address the tax challenges arising from digitalisation and globalisation.

Recognising how large multi-national enterprises (MNEs) across the globe now operate commercially and generate value, this significant agreement will ensure that the international tax framework keeps pace with these developments in a coordinated way.

Pillar Two of the agreement will see the adoption of a global minimum effective tax rate of 15% applying to multinational companies with global revenues in excess of €750 million. Ireland will retain its 12.5% corporation tax rate on trading profits for the 95% of companies in Ireland that are outside the scope of the agreement.

Pillar Two will be implemented in Ireland largely via transposition of the EU Minimum Tax Directive (Council Directive (EU) 2022/2523), which was agreed in December 2022. The Directive aims to ensure that there is a consistent application of the Pillar Two agreement across all EU Member States and in accordance with EU law, and thus will play an important role in safeguarding Ireland's competitive tax regime.

Work is now well advanced to transpose the EU Minimum Tax Directive in Ireland in next month’s Finance Bill. This is a complex undertaking, requiring a significant commitment of resources by both the State and the business community.

Ongoing stakeholder engagement by my Department has been an important part of the transposition process. Building on an initial public consultation last year, in March this year I published a Feedback Statement on Pillar Two implementation which contained an overview of our proposed approach to domestic transposition and draft approaches to some of the key legislative provisions, and confirmed Ireland’s intention to introduce a Qualified Domestic Top-up Tax (QDTT). The Feedback Statement, together with responses received, is available on my department’s website at:

www.gov.ie/en/consultation/a0d43-pillar-two-implementation-feedback-statement/

In July, I published a second Feedback Statement containing draft approaches to further provisions of the implementing legislation, including the QDTT, and approaches to incorporating additional guidance recently released by the OECD. The Feedback Statement, together with responses received, is available at: www.gov.ie/en/consultation/45846-feedback-statement-on-the-transposition-of-the-eu-minimum-tax-directive-the-pillar-two-directive/

Responses to both consultations are informing the continuing development of the final legislation.

Certain technical aspects of how the Pillar Two is to operate remain under discussion at the OECD and Ireland is an active participant in these discussions.

Michael McGrath (Cork South Central, Fianna Fail)
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I am aware that Oxfam International released a report in January 2023 regarding global wealth inequality entitled “Survival of the Richest”which proposes new wealth taxes in Ireland and in other jurisdictions.

While I understand the background to calls for a specific wealth tax in Ireland, it is not the case that wealth in Ireland is untaxed, as taxes on wealth are already in place here.

The Government is committed to creating a fairer, more equal Ireland. While the calls for a specific wealth tax are often made, there are already a number of wealth taxes in place including Capital Gains Tax, Capital Acquisitions Tax and Local Property Tax. Revenue estimates that these taxes raised over €2.8 billion last year.

The Oxfam report notes that “Two-thirds of countries do not have any form of inheritance tax on wealth and assets passed to direct descendants.”I would remind the Deputy that Ireland has a significant inheritance tax regime in place in the form of Capital Acquisitions Tax which is charged (with limited exemptions) at a rate of 33%.

Oxfam's report also notes that “Rates of tax on capital gains – in most countries the most important source of income for the top 1% – are only 18% on average across more than 100 countries.”I would again remind the Deputy that Capital Gains Tax is in place in Ireland and it is charged, again with limited exemptions, at a rate of 33% which is well above the 18% average reported by Oxfam.

Any revenue raised from a new wealth tax may not therefore be additional to the existing forms of wealth taxation, as revenues from those taxes could be affected by the introduction of such a new tax.

In addition to wealth taxes, the Government takes action against inequality through our tax and welfare system. For instance, the strong redistributive role of the Irish tax and welfare system is evident in the range of supports introduced to help mitigate the impact of the Covid-19 pandemic and the current cost of living pressures on vulnerable households and businesses. The overall distributional impact of Budget 2023 was strongly progressive, with the lowest three deciles experiencing the highest gains as a proportion of disposable income.

Ireland has one of the most progressive systems of taxes and social transfers of any EU or OECD country, which contributes to the redistribution of income and to the reduction of income inequality.

It is estimated that the top 1 per cent of income earners here, that is those earning in excess of €263,000, will pay 23 per cent of the total income tax and USC collected in 2023, while those earning less than €65,000, which represents 80 per cent of income earners, will contribute only 21 per cent of total income tax and USC receipts.

In relation to the Deputy’s reference to a one-off corporate windfall tax, as a small open economy, connected to Europe, the US and the wider world, Ireland has been and is committed to a competitive, transparent and stable corporation tax system. As the Deputy will be aware, the trading profits of companies in Ireland are generally taxed at the standard corporation tax rate of 12.5%. Ireland’s corporate tax regime has been built on certainty and predictability, and the 12.5% corporation tax rate on trading income has been a cornerstone of that regime for over 20 years. This stability has enabled companies to plan long-term investments in Ireland, generating employment and increasing economic activity.

The Deputy will be aware that Ireland, along with almost 140 other countries in the OECD/G20 Inclusive Framework, signed up to the two-pillar agreement on international corporate tax in October 2021. Pillar Two of the agreement will see the adoption of a global minimum effective tax rate of 15% applying to large corporate groups with global revenues in excess of €750m.

Pillar Two will be implemented in Ireland largely via the EU Minimum Tax Directive (Council Directive (EU) 2022/2523), and work is now well advanced to transpose the EU Minimum Tax Directive in October’s Finance Bill this autumn.

In conclusion, I can assure the Deputy that all potential taxation options are kept under consideration and it remains a priority of mine to ensure that Ireland maintains its progressive taxation system and continues to support substantial investment and economic activity in the State.