Donohoe rules out change to laws that allow banks to pay no taxes

Banks will not be liable to pay taxes for at least 20 years

 Minister for Finance Paschal Donohoe:  said  changing the rules would have a detrimental impact on the value of the State’s investment in the banks. Photograph: Brenda Fitzsimons

Minister for Finance Paschal Donohoe: said changing the rules would have a detrimental impact on the value of the State’s investment in the banks. Photograph: Brenda Fitzsimons

 

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 that 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.

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.

Capital requirements

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 in Ireland “are truly exceptional and warrants examination”.

He also wondered if the rules could used to ensure the banks meet their responsibilities in relation to the brewing tracker mortgage controversy.

However, Mr Donohoe warned changing the rules would have too many negative consequences.