AIB and PTSB would be worst hit by tax proposal

Proposal to introduce ‘sunset clause’ to limit the use of so-called deferred tax assets

Bank of Ireland had €1.2 billion of deferred tax assets on its balance sheet at the end of December.

Bank of Ireland had €1.2 billion of deferred tax assets on its balance sheet at the end of December.

 

State-controlled AIB and Permanent TSB would be worst hit by the Oireachtas Public Accounts Committee’s plans to recommend that banks should be curtailed from using losses accumulated during the financial crisis to lower their tax bills over the long term, according to analysts.

The Sunday Business Post reported over the weekend that the influential committee would seek to introduce a “sunset clause” into law, which would limit the use of so-called deferred tax assets (DTAs) to a 10-year period.

The committee believes that the sector is now profitable and should be contributing to the exchequer.

“A change in policy would likely have material implications for the banks, though we note previous proposals for amendment were removed given the ramifications for our wider corporate tax policy, so there is no guarantee this proposal succeeds,” said Goodbody Stockbrokers analysts in a note to clients on Monday.

Bank of Ireland had €1.2 billion of DTAs on its balance sheet at the end of December and Goodbody Stockbrokers said that its valuation on the assets account for 4.6 per cent of the entire value it puts on Bank of Ireland. It also estimates that the bank would be able to use all of its DTAs well within the 10-year timeframe envisaged by the Public Accounts Committee.

AIB, which is 71 per cent State-owned, has €2.6 billion of DTAs. However, Goodbody values these at a little over half that level, on a present-value basis, as it would take about 17 years for the bank to use up these assets.

AIB’s DTAs account for 8 per cent of the stockbroker’s fair value on the bank, so a 10-year sunset clause would wipe 3 per cent from the bank’s value, the analysts estimate.

PTSB, in which taxpayers continue to own a 75 per cent stake, has €350 million of DTAs, which account for 13 per cent of Goodbody’s fair value for the bank. “With two-thirds used beyond this 10-year period, circa 8 per cent of value would be impacted,” the broker’s analysts said.

“The State would be the biggest loser given its significant shareholding across the banking sector,” according to Davy analysts, noting that the Government is currently raising €150 million a year from a levy on the country’s banks that was introduced in 2014 and is due to expire in 2021.