Dono­hoe rules out changes to bank taxes

Min­is­ter says changes would have an ad­verse im­pact on the State’s in­vest­ment in the banks Rules ‘de­ferred tax as­sets’ means Ir­ish banks won’t pay taxes for at least 20 years

The Irish Times - Business - - BUSINESS / NEWS - EOIN BURKE-KENNEDY

Min­is­ter for Fi­nance Paschal Dono­hoe has ruled out amend­ing tax reg­u­la­tions, which al­low banks to off­set losses made dur­ing the re­ces­sion against fu­ture tax bills.

The cur­rent rules on “de­ferred tax as­sets” mean AIB and Bank of Ire­land, which both made over a €1 bil­lion in profit last year, will not be li­able to pay cor­po­ra­tion tax here for at least 20 years. Mr Dono­hoe said, how­ever, that chang­ing the rules would have a detri­men­tal im­pact on the value of the State’s in­vest­ment in the banks and could pre­cip­i­tate fur­ther cap­i­tal short­falls on the banks’ balance sheets.

“Any in­di­ca­tion that we are go­ing to change the tax­a­tion sta­tus of the de­ferred losses would have an ef­fect on other ob­jec­tives we’re looking to ful­fil with the banks,” he told the fi­nance se­lect com­mit­tee, which was meet­ing to con­sider the Gov­ern­ment’s Fi­nance Bill.

Re­stricted

The rules ap­ply­ing to de­ferred tax as­sets were re­stricted in 2009 by the then fi­nance min­is­ter Brian Leni­han, who placed a 50 per cent limit on the losses bailed-out banks could carry for­ward. How­ever, in 2014 his suc­ces­sor Michael Noo­nan re­versed the change, in part, to al­low banks meet tougher cap­i­tal re­quire­ments with­out fur­ther State as­sis­tance.

“The net ef­fect of the mea­sures in terms of tax re­ceipts is one of tim­ing which will be off­set by an im­prove­ment in the val­u­a­tion of the State’s equity stakes in the banks as well as its net in­vest­ments, while the risk to the State as a back­stop provider of cap­i­tal is re­duced,” Mr Dono­hoe said.

“Rather than change or in­ter­fere with the de­ferred tax as­sets by chang­ing tax pol­icy, the Gov­ern­ment has en­sured a con­tri­bu­tion from the sec­tor through the bank levy which has been payable since 2014,” he said, not­ing the levy will net the ex­che­quer €750 mil­lion over the next five years.

Sinn Féin’s Pearse Do­herty said it was a dis­grace that Ir­ish banks, which had caused so much eco­nomic and so­cial dam­age to the coun­try, were ef­fec­tively al­lowed to pay no tax.

“I would like to steer this par­lia­ment in a di­rec­tion where we no longer tol­er­ate a sit­u­a­tion where a bank, which records €1.5 bil­lion of profit in 2017 [AIB’s pro­jected profit], doesn’t pay a penny in tax to the State,” he said.

The deputy said he was not ar­gu­ing against the idea of losses be­ing car­ried for­ward, but for the pre­vi­ous re­stric­tion adopted by Mr Leni­han to be re­in­stated. “He [Leni­han] had the fore­sight to see that these banks were go­ing to be prof­itable at some point,” Mr Do­herty said.

Fianna Fáil’s Michael Mc­Grath tabled an amend­ment to the Bill, call­ing on the Gov­ern­ment to ex­am­ine the im­pact on banks of res­ur­rect­ing this re­stric­tion. While ac­knowl­edg­ing the rules gov­ern­ing trading losses be­ing car­ried for­ward was an im­por­tant fea­ture of the tax code, Mr Mc­Grath said the cir­cum­stances re­gard­ing the banks “are truly ex­cep­tional and war­rants ex­am­i­na­tion”.

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