AIB paying no tax

[TheBigShort]

[Moved from a thread suggesting that social welfare payments should be cut]
Looks like they are not being cut again anytime soon

http://m.independent.ie/irish-news/...ldnt-live-on-198-welfare-a-week-36176649.html

Of course lefties and the socialists will be to blame despite the fact that they are not the ones in power making the decisions.
The only conclusion then is to consider is that the broad political spectrum across the country has gone left?

Until of course, you read this. Social welfare for multi-million Euro corporate stockholders.

http://www.irishexaminer.com/breaki...-corporation-tax-for-20-years-ceo-807486.html

Please stop whinging about the woman with 5 kids, one with cerebral palsy. Please stop whinging about people who have lost their jobs, their homes and are placed on social housing waiting lists.
Wake up to the pilfering of economic wealth. It's trickle-up economics. It is collapsing in upon itself. It is not the fault of the poor or the needy.

 

[qwerty5]

Until of course, you read this. Social welfare for multi-million Euro corporate stockholders.

http://www.irishexaminer.com/breaki...-corporation-tax-for-20-years-ceo-807486.html

I'm not sure I disagree with this kind of policy. Suppose I lose 10 million this year then next year if I make 5 million I'm still at -5 million. Do you think I should be paying tax on a minus number just because it's a positive number over this year?
What's the alternative?

 

[TheBigShort]

I'm not sure I disagree with this kind of policy. Suppose I lose 10 million this year then next year if I make 5 million I'm still at -5 million. Do you think I should be paying tax on a minus number just because it's a positive number over this year?
What's the alternative?

The rules are clear in terms of offsetting losses in a financial year against profits made in another year.
What's happened here is that AIB has secured a tax advantage over the next twenty years. We have sold 25% of that advantage to the highest bidder, typically corporate investors.
In real terms, if there wasn't an opportunity to exploit this advantage it wouldn't have been bought into.

 

[Sarenco]

The rules are clear in terms of offsetting losses in a financial year against profits made in another year.

What's the problem so?

Are you suggesting that AIB has gained some advantage that another company would not benefit from in precisely the same circumstances?

The recent public offering of AIB stock by the State was generally considered a huge success for the taxpayer.

 

[TheBigShort]

Moved from a thread suggesting that social welfare payments should be cut]

The OP is mine, but the thread is not. I was invited to edit the title of the thread by the moderator as I wished. I've done that now.
The moderator is requested to take my username of the thread owner.
Thks TBS

 

[Gordon Gekko]

They made an actual economic loss and the rules allow companies to carry forward such losses and offset them against economic gains.

Any restriction on the above impacts on the bank's capital position as it loses the deferred tax asset that those losses represent. The State is then compelled to step in and shore up the capital position (circa €3bn).

Moaning about AIB not paying corporation tax for the forseable future is lowest common denominator stuff to be frank.

 

[TheBigShort]

What's the problem so?

Assuming a €1bn profit a year for next 20yrs.
Taxed at 12.5%. With 99.99% shareholding, the State, which bailed out the bank with your and mine taxes would ordinarily receive;

€875m profit + €125m tax routed through Revenue = €1bn.
But due to this special treatment, the €1bn profit would simply be collected.

Now, with 25% sold off. Ordinarily, woithout this special treatment we would receive, following a €656m profit + €93,750m CT at 12.5%.
Additionally, the 25% shareholding, ordinarily being subject to corporate tax would yield a further €250m x 12.5% = €31.25m a year.

That €31.25m (based on €1bn profit) a year is lost to private financiers who have been afforded another handout.

 

[blured]

http://www.thejournal.ie/aib-sale-e3-billion-raised-3459358-Jun2017/

The State made €3.4bn on the sale of the 25% of AIB. That means that at your figure of €1bn a year profit, it would take the State over 13 and a half years to get this back if they hadn't sold (€250m a year). With or without the tax treatment

 

[TheBigShort]

http://www.thejournal.ie/aib-sale-e3-billion-raised-3459358-Jun2017/

The State made €3.4bn on the sale of the 25% of AIB. That means that at your figure of €1bn a year profit, it would take the State over 13 and a half years to get this back if they hadn't sold (€250m a year). With or without the tax treatment

According to the report that you linked, the State put €21bn into AIB to bail it out. As far as I know some €7bn has been paid back by the bank, leaving a €14bn deficit. 25% of that is €3.5bn. We sold it for €3.4bn.

Regardless of the sale, the point is AIB secured a tax position with the State that it is estimated, no tax on profits will be paid for 20yrs. It's a nice position for AIB to be in. We just sold 25% of that position ( for no real gain considering what we put into it) to private financiers for them to benefit from that position.
I estimate (based on a €1bn profit a year) to be €31m a year handout.

 

[Sarenco]

Assuming a €1bn profit a year for next 20yrs.
Taxed at 12.5%. With 99.99% shareholding, the State, which bailed out the bank with your and mine taxes would ordinarily receive;

€875m profit + €125m tax routed through Revenue = €1bn.
But due to this special treatment, the €1bn profit would simply be collected.

BS

AIB won't pay corporation tax for many years to come because of its large deferred tax asset (losses carried forward). Nothing to do with the ownership of AIB and nothing to do with any "special treatment".

Your "calculation" is, frankly, nonsense.

By the time AIB is fully re-privatised it is highly likely that the State will have recouped the full amount invested in AIB.

 

[TheBigShort]

AIB won't pay corporation tax for many years to come because of its large deferred tax asset (losses carried forward).

Yes, that is outlined in the article.

Nothing to do with the ownership of AIB and nothing to do with any "special treatment".

Fair point, "special treatment" was wrong choice of words.
As far as ownership is concerned, it is up to the owners (the State) to sell it to whoever they want to. I can then decide if I think it is a bad deal or a good deal.
In this instance, I believe it is an excellent deal for the buyers, as profits won't be subject to corporate tax on profits for a long time as a consequence of losses carried forward.
Those losses were absorbed by Irish taxpayers. Those losses now carried forward on future profits will result in zero corporate tax liability.
This is a bonus for shareholders who didn't contribute to the bailout through our taxes, but can now avail of benefits of losses carried forward.

Your "calculation" is, frankly, nonsense.

Simplistic yes, nonsense no. Tax payers are at a loss once again. It is a wealth transfer from Irish public finances to private corporate financiers.

By the time AIB is fully re-privatised it is highly likely that the State will have recouped the full amount invested in AIB.

If it is that profitable, and if the State is the shareholder why privatise it? Why hand it over to the speculators and gamblers once again?

 

[Sarenco]

I believe it is an excellent deal for the buyers, as profits won't be subject to corporate tax on profits for a long time as a consequence of losses carried forward.

Do you really think this valuable asset would have been ignored by the State's advisors when pricing the stock? Really?!

Simplistic yes, nonsense no.

No BS, it is nonsense. You obviously don't understand basic accounting.

Tax payers are at a loss once again

No BS, they're not. The losses have already been incurred by AIB - hence the deferred tax asset.

It is a wealth transfer from Irish public finances to private corporate financiers.

No BS, it isn't. The public sale of AIB shares generated cash for the State that was used to pay down debt.

If it is that profitable, and if the State is the shareholder why privatise it?

Why privatise the largest bank in the State? Because the overwhelming majority of people don't want to live in a country where the State controls all capital.

Why hand it over to the speculators and gamblers once again?

Do you consider all private stockholders to be "gamblers and speculators"? Silly question - of course you do. Such a thing simply wouldn't exist in your communist utopia.

 

[TheBigShort]

Do you really think this valuable asset would have been ignored by the State's advisors when pricing the stock? Really?!

Of course not, it is stated in the article. The rules were changed to facilitate the bank being able to class the loss of some €3 bn as a deferred tax asset.
The point is the bank has secured a favourable position with the treatment of this €3 bn. All legal and above board.
Here is a chance to utilise that favourable position (0% CT rate on profits that would ordinarily attract 12.5% tax rate for liabilities up to €3 bn).
Having secured a favourable tax position on these profits, the State has decided to sell that position instead of utilising it to the max.

Do you consider all private stockholders to be "gamblers and speculators"? Silly question - of course you do. Such a thing simply wouldn't exist in your communist utopia.

I am both a gambler and a speculator, just not with other people's money.

 

[Sarenco]

Having secured a favourable tax position on these profits, the State has decided to sell that position instead of utilising it to the max.

How exactly do you think that the State could have maximised the fact that AIB will not have to pay corporation taxes to the State for years to come without disposing of its holdings in AIB?

Think about it for a second BS.

 

[Firefly]

No BS, it is nonsense. You obviously don't understand basic accounting.

Nor economics.. quite the handicap on a financial site like this..

 

[TheBigShort]

How exactly do you think that the State could have maximised the fact that AIB will not have to pay corporation taxes to the State for years to come without disposing of its holdings in AIB?

There is €3 bn of losses classed as deferred tax asset. Yes? No?
The State before the sale of shares had 99.9% of shares of AIB. Yes? No?
So if AIB made a profit of say €1 bn, the State effectively, as the 99.9% sharueholder Ieffectively has control of all of that. Yes? No?
Ordinarily, such a profit would be subject to 12.5% corporate tax. Yes? No?
In other words €125m. Yes? No?
So AIB realise an after tax profit of €825m (controlled by the State). Yes? No?
The Revenue (controlled by the State) collect €125m. Yes? No?
The combined total is €1bn in the control of the State. Yes? No?
But because of the deferred tax asset, the applicable rate this year is 0%. Yes? No?
In which case AIB, and the State with its 99.9% stake, effectively realises the €1 bn as profit - no need to bother the guys down at Revenue.
A €1bn return to the State with or without the deferred tax asset. Yes? No?

On the other hand, the State sells a 25% share of AIB for what it values it to be, roughly €3.4 bn. No problem there.

But now, when it comes to calculating the tax liability of €1 bn, only €750 bn is controlled by the State. Yes? No?
The other €250 bn is profit for private investors. Yes? No?
These profits, ordinarily would be subject to 12.5% tax, Yes? No?
In which case the private investors would ordinarily trump up €31,250,000m. Yes? No?
But because of the deferred tax asset, the applicable rate this year is 0%. Yes? No?
So no need to bother guys down at Revenue? Yes? No?
So the State now gets a €750m share of profits and the private investors gets €250m with no tax liability courtesy of their entitlement of the deferred tax asset. Yes? No?
A total return to the State of €750m instead of €750m + €31,250,000 tax collected from private investors. Yes? No?

In return the State has sold a 25% share for €3.4bn, at value which includes, as you quite right pointed out, this valuable deferred tax asset.
On the other hand, the State could have deferred the sale of the shares (foregoing the €3.4 bn for now) and instead utilised the deferred tax asset until it was exhausted. The AIB CEO estimates this to be 20yrs. In reality that is pure speculation, and in fact it take longer than that to utilise the deferred tax asset, or it could also be a lot quicker than that.
Either way the option to utilise the asset for its 0% CT has now been diminished.
Instead it could have been utilised to the max for the benefit of the Irish taxpayer then the State could commence offloading its shareholding at the prevailing market value at the time.
This could of course be risky as who knows what the prevailing market rate will be?
But considering that the deferred tax asset will only be fully utilised if the bank is profitable, and considering all the efforts to date to keep this bank afloat, one would have to assume that those who are managing it believe it has a future, and that the future is profitable. Therefore I think, selling off shares now, with a lucrative tax saving vehicle such as the deferred tax asset is a transfer of wealth from the Irish taxpayer to the private investor.

 

[TheBigShort]

Nor economics.. quite the handicap on a financial site like this..

Ah, comrade Firefly, you must enlighten me with your views on that 'superb!' article in the Daily Mail a few days back.

 

[Sarenco]

On the other hand, the State could have deferred the sale of the shares (foregoing the €3.4 bn for now) and instead utilised the deferred tax asset until it was exhausted.

BS

If you can explain how the State could utilise a tax deferred asset to its advantage, I promise to try and answer your (frankly ridiculous) questionnaire.

I assume you understand that a pro-rata element of the value of the tax deferred asset would have been reflected in the price paid for the shares in the public offering? Right?

Thanks.

 

[TheBigShort]

the State has sold a 25% share for €3.4bn, at value which includes, as you quite right pointed out, this valuable deferred tax asset.

I assume you understand that a pro-rata element of the value of the tax deferred asset would have been reflected in the price paid for the shares in the public offering? Right?

Yes, as already acknowledged above.
I'm sorry you think the questionnaire is ridiculous but I tried to keep the questions as simple as possible as you are not able to see how this valuable asset (which no doubt attracted a higher share than would have ordinarily be got without it) could have been used instead for the benefit of the Irish taxpayer.
With a 100% ( let's not quibble about the 0.01% holding for now), the State has an attractive holding in the bank insofar as the bank has secured a deferred tax asset of €3bn. All legal and above board.
Compare that to a bank in an identical position to AIB, 100% state owned but that doesn't have the deferred tax asset. Instead, it's profits of €1 bn will be taxed at 12.5% with no tax deferred asset to write the tax liability down. Right? But because both banks are 100% state owned, it's neither here nor there. Both banks profits and subsequent tax liabilities are 100% controlled by the State.
Now sell 25% of each bank. Clearly the bank with the tax deferred asset will attract a higher price. This is great for one off capital payments and debt write downs.
However, over the next 20yrs, assuming both banks perform exactly the same every year growing say 3% average, there will be a difference in the level of tax payable by each bank.
The private investors who bought into the cheaper bank (without the tax deferred asset) will have their profits subject to 12.5% won't they?
The investors in AIB won't. This is a deficit to the public finances to the benefit of private investors. If both banks re-invest their after tax profits back into the bank, AIB will be committing 100% of profits (or €1bn this year), the bank that is subject to 12.5% will only re-invest (€875m).
Considering those facts by themselves, which share price do you think would rise most over twenty years?
And I should add that is why we should have held on to 100% of AIB because in twenty years time its value will be a lot higher on foot of the deferred tax asset.

 

[Sarenco]

BS

A tax deferred asset is a valuable asset in the hands of the tax payer - not the tax collector.

You seem to be suggesting that the State should have retained its shareholding in AIB until the value of the tax deferred asset was reduced to zero.

Cunning plan.

As cunning as a fox that has just been appointed Professor of Cunning at Oxford University.

Hang on! Won't that just cause a corresponding reduction in the value that could be realised on the sale of those shares?

Drat.