Banks set to remain exempt from tax
Banks are likely to be allowed to continue to pay zero tax on billion euro profits following a Department of Finance review of exemptions for lenders and other corporations.
Finance Minister Paschal Donohoe will present a review on corporation tax to an Oireachtas committee next month. This will highlight the continuation of the current bank levy as opposed to changes to the tax exemption.
The bank levy yields €150m annually. However, Opposition TDs want the tax exemption, which allows banks write off taxes against past losses, scrapped. This is despite many banks having returned to huge profit.
Last year, Bank of Ireland, AIB, and PTSB made combined profits of €2.5bn. However, they paid no tax. In 2015, the Government changed the rules allowing banks to defer taxes for up to 20 years.
An internal Department of Finance report for Mr Donohoe has looked at the effect of limiting the provision of tax relief for losses carried forward for the banks.
While the report was scheduled to be completed in June, the scope was extended so officials could examine scrapping tax exemptions for all corporate entities as well as the use of a sunset clause.
The Irish Examiner understands that Mr Donohoe is opposed to overhauling the tax regime for banks or corporate entities. Similarly, a cap on profits before taxes kick in is opposed.
A Department of Finance source said: “The bank levy is a more appropriate method as opposed to messing with the tax system and other corporate groups.”
The department is also conscious that any tax increases for State-owned banks, particularly AIB, could affect their share prices.
“The taxpayer has a huge interest here already,” said the department source.
Department tax strategy group papers for Budget 2019, released earlier this month, show there is little appetite to scrap exemptions for the banks.
One paper noted the bank levy yields €150m annually and was introduced “in part to recognise the fact that many banks would not pay” tax for many years.
The paper noted Mr Donohoe views the “bank levy as the appropriate method of ensuring the banks contribute to the exchequer”.
The report on bank taxes is expected to say that the provision of relief for such losses is a standard feature of Ireland’s tax code and that of all other countries in the OECD. It will also examine how other governments do or do not allow bank losses to be carried over.
The latest Revenue figures, for 2016, show that trading losses carried forward in all sectors amounted to some €214bn. Over half of this was in the financial and insurance sectors.
Oireachtas Finance Committee TDs and senators are expected to receive the report on bank losses from the minister next month.
Sinn Féin’s Pearse Doherty wants a 25% cap on the carrying forward of losses and a 10-year limit to ensure banks pay a fair share.
The party maintains that the tax system should be built on fairness and the exemptions for banks must end so that “hundreds of millions in tax can be collected”.
But department sources say the minister won’t reinstate the tax for banks.
A source added: “This report examines the pros and cons of the treatment of [bank] losses. The chances are, he won’t make changes.”
Meanwhile, Taoiseach Leo Varadkar has said the budget will provide further tax relief for middle-income earners but must ensure that the public finances are ready for any “economic turmoil” in the years ahead.
He also confirmed that revenue-raising measures are being considered to increase the €800m extra available next year to spend on services and tax cuts.
His comments come as the Government prepares to begin negotiations with Fianna Fáil for Budget 2019.
Speaking at the agriculture show in Virginia, Cavan, Mr Varadkar said every demand could not be met and the first priority is to balance the books and reduce debt: “If we are heading into any economic turmoil in the years ahead because of Brexit or anything else, the best way to prepare for that is to make sure that our public finances are in order.”
