Tuesday 22 May 2018

Use bank profits to write off more debt, says EU

'Brussels said the improved performance of the banks should allow for a more ambitious reduction in non-performing loans' (stock photo)
'Brussels said the improved performance of the banks should allow for a more ambitious reduction in non-performing loans' (stock photo)
Colm Kelpie

Colm Kelpie

Rising profits at Irish banks means they could cut bad loan exposures by writing off more unpayable debt for businesses and households, the European Commission has said.

Brussels said the improved performance of the banks should allow for a more ambitious reduction in non-performing loans.

Permanent TSB ignited a storm of controversy for opting to sell its bad loans - including consumer mortgages - to hit bad debt reduction targets.

In its latest assessment of the economy, the Commission said the banks should be encouraged to have a "continued and more durable reduction in non-performing loans through resolution strategies that involve write-offs for viable businesses and households, with a special emphasis on resolving long-term arrears".

It comes just weeks after it emerged that state-owned Permanent TSB may sell its non-performing loans to an unregulated vulture fund. The Commission said long-term mortgage arrears remain the biggest challenge, and that insolvency procedures, including court options, "remain little used".

Brussels also argued that Ireland's corporate tax rules are still being used by multinationals for aggressive tax planning.

Exemptions from withholding taxes on dividend payments made by companies based in Ireland may lead to those payments escaping tax altogether, it said.

It also warned that there existed some provisions in bilateral tax treaties between Ireland and other countries that could be used by companies to overrule the new tax residence rule.

"The high level of dividend payments and, in particular, charges for using intellectual property, suggest that the country's tax rules are used by companies that engage in aggressive tax planning," the Commission report said.

"Exemptions from withholding taxes on dividend payments made by companies based in Ireland may lead to those payments escaping tax altogether, if they are also not subject to tax in the recipient jurisdiction.

"This may facilitate aggressive tax planning."

In a separate Commission report focusing on aggressive tax planning structures, Brussels said Ireland is one of a number of small member states exposed to aggressive tax planning.

It focused, in particular, on the flow of royalty payments, which it said was high in Ireland's case.

"Ireland stands out as the member state with the highest net royalty payments (as a percentage of GDP), which is consistent with a potential ATP (aggressive tax planning) channel using royalty payments," the report noted.

"Other member states with significant royalty inflows and outflows (and positive net outflows) are Luxembourg, Malta and the Netherlands. Sweden, Finland, Denmark and the United Kingdom have the highest net royalty receipts."

Meanwhile, the Commission said the economy continues to grow at a "solid pace" and that domestic activity continues to "thrive". It said the Government has repeatedly intervened to tackle the undersupply of housing, but it will take time for the measures to have an effect.

But it warned that it remains "difficult to access affordable, full-time, quality childcare". The Commission also warned about the over-reliance on corporate income taxes, and said the majority of measures in Budget 2018 were "biased towards uncertain tax bases".

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