Sunday 30 April 2017

Banks cost the State millions in lost tax

Fergus Black

IRELAND'S banks were costing the taxpayer millions in lost revenue – almost three decades before the infamous bailout of 2010.

Newly released state papers reveal how the Revenue Commissioners estimated that in 1982, the banks were costing the Exchequer £50m a year – the equivalent of almost €162m in today's values – through tax-avoidance devices.

The banks defended the measures, saying they were a response to industry demands in providing low-cost funds.

But the "hidden subsidies" were blasted by the then Finance Minister, John Bruton, who said it was "most undesirable" that these should be relied upon to provide "cheap finance" for industrialists.

The minister sought government approval to counter the banks' tax-avoidance measures by imposing restrictions on the amount of tax-capital allowances they could claim and by closing off loopholes in legislation.

A memo from the Department of Finance in January 1982 reveals how the Central Bank felt that the banks should be subject to the same taxation regime as other non-manufacturing enterprises.

The memo also details how Mr Bruton felt that the correct and most efficient way of subsiding credit to reduce its cost to borrowers was through schemes such as the interest-subsidy scheme operated by the IDA.

"He regards it as most undesirable that hidden subsidies, which have come about gratuitously or through an abuse of the legislation, rather than as a result of conscious policy decisions by Government, should have to be relied on to provide cheap finance for industrialists."

According to published bank accounts for the year ended March 1981, the two main banking groups had combined pre-tax profits of £105m (€340m in today's values) and a combined tax provision of £15m (just over €48.5m).

Exchequer

But Revenue calculated that the tax-avoidance measures "in the hands of all the banks" were costing the Exchequer £50m a year.

"The Exchequer loses tax revenue as a result of the tax-avoidance activities of the banks, industrialists and others benefit by obtaining cheap finance – in effect an Exchequer interest rate subsidy," said the memo.

The document explained that under leasing – the main tax-avoidance area – banks bought capital equipment and availed of tax-capital allowances, often with the help of IDA grants.

This allowed the banks to reduce their tax liability and enabled them to lease the equipment at rental terms favourable to the lessees.

Irish Independent

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