AIB paying no tax

[TheBigShort]

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

Whoo!hoo! Now you are getting it. With a 100% shareholding, the State has 100% of a valuable asset in its hands for the next 20yrs.
With a 75% holding, it can only utilise 75% of that asset on behalf of irish taxpayer. The other 25% is utilised by corporate investors.

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.

Yes, that is the idea.

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

That depends how the benefits of the asset are managed.
Sure, if the government sold earlier in the year without the tax deferred asset, then the share price would have sold significantly less than €4.40 a share.
But if the bank re-invests the benefits (usually there is a benefit to holding an asset, hence the term asset) of the asset back into the bank then it's share price will increase.
And in twenty years time, with all those profits, benefiting from the tax asset, who knows, maybe the bank will be worth more than €4.40 a share. Allowing for de/inflation, who knows the bank could be worth considerably more than it is today (€5.06 at close today, and why not, with that tax deferred asset up for grabs, who wouldn't want a piece over the next twenty years?).

 

[Sarenco]

Whoo!hoo! Now you are getting it. With a 100% shareholding, the State has 100% of a valuable asset in its hands for the next 20yrs.

BS

A tax deferred asset is of no value in the hands of the State (the tax collector).

Can't you see that?

The rest of your post suggests that you are missing this very obvious point.

 

[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,

The above is not the first time that you've asked me a question, I've answered it, and you've ignored the response because it blew your argument out of the water.

Now you seem to be pushing this idea that the market didn't know about the deferred tax asset and that it wasn't built into the price that the State sold some of its shareholding at.

There is no preferential treatment here; if Gekko Ltd loses its shirt selling widgets, those losses become a deferred tax asset. Trying to restrict the banks' losses was unfair and actually imposed greater obligations on the State in terms of shoring up the banks' capital positions.

 

[TheBigShort]

A tax deferred asset is of no value in the hands of the State (the tax collector).

Can't you see that?

The rest of your post suggests that you are missing this very obvious point.

Absolutely I can see that.
But you seem to be missing a an important part of the equation

A tax deferred asset is a valuable asset in the hands of the tax payer -

That is that the State is sitting on both sides of this equation, as the tax collector and the taxpayer (by virtue of its 100% holding of AIB).
By reducing that holding, the value of the asset holding is reduced. It is transferred to private ownership which now utilises the asset.
Put another way, imagine if the State sold 100% of AIB for €12bn or so and today it was revealed that no CT would be paid for 20yrs to liabilities valued to €3bn?
In effect it would be considered, rightly in my view, as a transfer of wealth from the State to private investors.
While getting paid €12bn plus €7 already paid, that falls €2bn short of the €21bn for the bailout.
If AIB, having secured a favourable tax position with €3bn deferred tax asset, and being 100% in the private sector. Then the State would lose out on those potential revenues on foot of AIB securing that deferred tax asset.
In other words what was the point of securing that €3bn if it is of no advantage for the State to hold it (75% holding today).

We will have to agree to disagree. My view that this decision was mostly out of political expediency following an ideological view that the State should not be involved in private (and profitable) banking affairs.

The deferred tax asset will be utilised quicker than 20yrs as the State unwinds its position.

 

[TheBigShort]

The above is not the first time that you've asked me a question, I've answered it, and you've ignored the response because it blew your argument out of the

1.What question did I ask you?
2. I do my best to answer all questions put to me, unlike a lot around here.
3. Seeing as I don't know what question I asked you, I can't confirm if you have 'blown me out of the water'!

Now you seem to be pushing this idea that the market didn't know about the deferred tax asset and that it wasn't built into the price that the State sold some of its shareholding at.

No I am not. If you are going to butt in to the discussion please read the thread. Here is what I have said about the deferred tax asset and its relation to the share price

There is no preferential treatment here; i

I implied "special treatment" earlier, which I corrected as being wrong choice of words. I have been clear that all is legal and above board.
AIB secured a favourable tax position - legal and above board - with deferred tax asset. The State (was) a 100% stakeholder. The State should benefit from AIB availing of the benefits associated with that deferred tax asset.
Instead we have sold 25% of our position in AIB, reducing our ability to exploit that position.

 

[Sarenco]

That is that the State is sitting on both sides of this equation, as the tax collector and the taxpayer (by virtue of its 100% holding of AIB).

BS

Exactly. So a tax deferred asset is of no value to the State - on the one hand it does not recover tax that it would otherwise but on the other hand it does not suffer that same tax. Surely you can see that?

If you cannot grasp the basic economics of the issue (which is bizarre to me - this is not complicated), it is very difficult to take any view you might have on this issue seriously.

 

[Sarenco]

Put another way, imagine if the State sold 100% of AIB for €12bn or so and today it was revealed that no CT would be paid for 20yrs to liabilities valued to €3bn?

But that wasn't the case!

The extent of the losses that AIB was carrying forward was publicly available information at the time of the public offering.

Now I think I see your difficulty - reality just doesn't fit your agenda.

No problem, just invent an alternative reality!

 

[Gordon Gekko]

People are blue in the face pointing out the ridiculousness of what you're saying, BigShort.

The losses are reflected in the price received for the shares.

 

[TheBigShort]

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 one hand it does not recover tax that it would otherwise but on the other hand it does not suffer that same tax. Surely you can see that?

I've already pointed that out to you. That as a 100% stakeholder, with or without the deferred tax asset, the outcome in realising profits and tax for the State is the same.

As a 75% stakeholder, there is a difference for the State in realising its profits and taxes.
Without the deferred tax asset, the State can now levy a tax on profits on the private investor.
With the deferred tax asset, those taxes on profits are lost to the private investor. Hence, the boost it gives to the share price. This is good for one off capital payments to pay down debt. Certainly is.
Alternatively, holding 100% share of a bank that has no tax liability, free to re-invest 100% profits in itself would boost the share price anyway. And after 20yrs, those benefits will dwarf the €3.4bn 25% share sale.

It really is a matter of choice, cash in now? Or hold for later?
My view is the government should have held.
Time will tell.
Share price up 15% since sale of first tranche of shares. €4.40 is looking cheap in my view.

 

[TheBigShort]

People are blue in the face

Well get lost then, or better still answer the questions I asked you in the homeless threads. Or have you run away from them?

Btw, your last post is off track.

 

[Gordon Gekko]

Well get lost then, or better still answer the questions I asked you in the homeless threads. Or have you run away from them?

Btw, your last post is off track.

No, I just try to live by the "don't feed the trolls" motto.

Tough though, especially in the face of utter claptrap.

I can't wait for your "is the Moon made of cheese" thread...

 

[TheBigShort]

No, I just try to live by the "don't feed the trolls" motto.

Tough though, especially in the face of utter claptrap.

I can't wait for your "is the Moon made of cheese" thread...

Go back and tell me again how you had to work 9 months before you were entitled to anything on the dole and how unfair it was for you and your tax bill, relative to women who have children with cerebral palsy living in a two bed house.
Poor Gordon, how did you cope? It's just so unfair...boo!hoo!

 

[Gordon Gekko]

I have never posted anything about the dole or a nine month time horizon.

I think you are mixing me up with someone else.

 

[TheBigShort]

I have never posted anything about the dole or a nine month time horizon.

I think you are mixing me up with someone else.

Fair enough, I'm mixing you with someone else. Lost the cool there also, sorry about that.

But it is ridiculous to be accused of not answering questions when you haven't actually asked me one in this topic!
It really does waste time.

 

[TheBigShort]

But that wasn't the case!

The extent of the losses that AIB was carrying forward was publicly available information at the time of the public offering.

Yes they were, and anyone interested would know that. Certainly buyers and sellers. This being factored into the share price.
Move on now.

The implications of the losses being carried forward would however, I gather, not be known to the general public at large. That is, in the view of the CEO, 20yrs without any tax liability.
Knowing this, and considering the policy of government to unwind its position in AIB then it is too early in my opinion.

 

[Sarenco]

The implications of the losses being carried forward would however, I gather, not be known to the general public at large. That is, in the view of the CEO, 20yrs without any tax liability.

BS

Are you seriously suggesting that somebody buying €10k worth of stock in a public company wouldn't understand the implications of the losses that were being carried forward? Really?!

Even though the CEO of that company spelt it out for them?

Seriously BS. Stop digging.

 

[TheBigShort]

Are you seriously suggesting that somebody buying €10k worth of stock in a public company wouldn't understand the implications of the losses that were being carried forward? Really?!

Even though the CEO of that company spelt it out for them?

No, just me, the public accounts committee and the reporter at the Irish Examiner and his editor.
Don't be such a twit, when I spoke of general public, I was speaking in terms of their general understanding.
If you were / are a buyer of shares, of course you would know. If you weren't, like me, then I wasn't to know of this little sweeter.
Did you buy shares yourself?

 

[Gordon Gekko]

BigShort, stop hurling personal insults at other posters.

Listen to the substance of what Sarenco and I are saying.

You seem to have a blindspot in relation to this issue.

 

[TheBigShort]

Tough though, especially in the face of utter claptrap.

I can't wait for your "is the Moon made of cheese" thread...

BigShort, stop hurling personal insults at other posters.

You couldn't make this stuff could you?

Listen to the substance of what Sarenco and I are saying.

I understand what you and sarenco are saying (well, sarenco anyhow - I'm still perplexed at how you blurted in accusing me of not answering your question when you didn't actually ask one.)

You seem to have a blindspot in relation to this issue.

I would disagree. I think the blind spot lies with you. It is an opportunity lost (as a 100% stakeholder).
As the State unwinds its position this will become increasingly clear.
The proof will be in the pudding. The stock has risen 15% in two months. It has announced €800m+ profits, it has a tax deferred asset of €3bn on losses incurred. Do you think the government, the CEO, the financial advisors weren't aware of this?
Of course they were, yet they sell the stock priced at a level that is clearly showing to be cheap.
The consequences of the bailout are people whinging about how much tax they have to pay, they blame the poor. Oblivious to the fact that 90% of stock sold was sold to corporate investors who can now drink the gravy on a cheap stock that is highly profitable and those profits are tax free.
If you can't see this, and support the government position to wind down the stock, then don't come crying or blaming the poor when it all goes pop again.

 

[Purple]

The proof will be in the pudding.

The proof is never in the pudding, the proof of the pudding is in the eating.

The consequences of the bailout are people whinging about how much tax they have to pay, they blame the poor.

I've never heard anyone blame the poor for the bailout.

Oblivious to the fact that 90% of stock sold was sold to corporate investors who can now drink the gravy on a cheap stock that is highly profitable and those profits are tax free.

Nice soundbite but it doesn't mean anything.