There are no real tax implications as currently we impose tax not on windows or hearths, as we did in the past. We impose it on vehicles etc. We also impose it on profits. There have been massive losses.

These can be carried back for up to 3 years in the event of a cessation of a business. Then tax paid to the state can be clawed back for the benefit of the creditors or possibly the shareholders, if the losses were not enough to wipe them out. But that requires a liquidation of the business if carried on by a corporate person. Given the amazing treatment of trade profits taxed at 12.5%, no one should be trading without incorporation.

If the trading continues (the modern conceit foisted by management upon shareholders who do not exercise wise control is that companies should be immortal, continuing onto obsolescence etc. An opm circus.) then the carry back is limited to one years previous profits, but in group situations they may be offset sideways.

But when losses continue, there is no tax advantage even when profits in earlier years were unjustifiably large, beyond that one year period. Given the nature of multi year projects it may be that the loss should be able to be carried back further than one year, but that is not the law when was in the tax office. Thus tax may have been paid on the earlier years profits, as ongoing projects require a booking of profit over their length, but if then losses occur that will only be paid back if liquidation occurs within a short three year period. This may have the effect of shortening corporate lives in recessions, that are actually depressions, as they will last long enough for cash requiorements to overbear the desire to continue a failing business. It also reduces government revenue.

The transfer of an asset to NaMa is a sale and the profit or loss is dealt with in the accounts of the vendor. Some land sales are of the capital of the business:banks need branches. Selling them is a capital transaction. A higher rate of tax applies than the 12.5% rate, but there is indexation relief if there is a paper profit. There may then be no gain at all. In respect of the stock of the bank loans and the assets secured thereon, they will be trade profits, by and large. But tax laws recognized that there was so much money to bemade from planning permissions an act of the state, that there are special regimes for the sale of development land. These attract I think, a 40% rate of tax. I hope someone will confirm or correct that. No indexation on the windfall gain only on current use value. Banks do not normally sell such land, so I doubt there is an exemption from this rule in the legislation. Sales of land will carry VAT also.

Sales to NaMa, even with a mark to market, may mean a profit. The securities fall to NaMa because other losses by the developer, not allowable for corporate profit purposes, say his/her private dwelling, yet some business assets show a profit. This will increase their liabilities in the bankruptcy of the developer…..

So overall, no joy for the executive there. As there will be deflation for the foreseeable, there will have to be legislative tax activity to redress falls due to that and to the massive holes in VAT and PAYE revenue as corporate activity declines.

I daresay the Revenue will deny it but the loss of the sub-contractors employed in the building and ancillary industries will affect income taxes only slightly as most did not bother with formalities. It is not an easy activity and there are no barriers to entry. So it is not perhaps too unfair, My grudge is with the likes of those gangers who later pop up as builders, having rorted, Aussie word, the tax system but not passing on much to their workers.

I am aware that you think there is some scope for evasion/avoidance, Brian, but could you be more clear? As I said on the Obama initiative, the resources angle is crucial. Employment in the Revenue is definitely justifiable as extra hands will bring in more revenue, but policy is to tread lightly on action against the thieving classes. A rising tide etc. There will eventually be tax marches as in 1979, but there will be plenty of mayo dressing as this fish is well rotted in the head! The current policy is to spend less rather than to tax more. That will change, sadly when the economy is less well placed to pay.

The major source of taxes evaded will be traceable through the banks, but thankfully, they will not be state controlled, due to NaMa. I recall that the ACC was state controlled and was happy to shaft the Revenue for DIRT, albeit on a smaller scale than the AIB.

Wow am I tired! Thanks I enjoyed that!

I never worked in D13 nor DAD5. They used to solely with banks and insurnce companies. Banking profits arise from loans producing income but also what would in the hands of normal companies be capital and therefore exposed only to CGT. We included it in the profits for CT, but did a little calculation that meant it was taxed at CGT rates in reality.
But for a loss on loans there would normally be a full deduction unless it was lent to an associate of a shareholder in a “close” company. As quoted companies can not be close for tax purposes, this does not arise and all transactions are treated as made in the ordinary course of business. Probably a balancing of the need for quoted companies to be regarded well by incestors even if they are being ripped off. Theoretically, a quoted company could be otherwise close or controlled by 5 or less associated persons. This may even have occurred in respect of AngIB in view of the share shenanigans, but as it is defunct, the tax treatment is not relevant to anything.
So the losses should all be allowable. But where another party pays to the company any sum in respect of these loans then the losses would be disallowable to that extent, but the issue could easily end up in the Supreme Court. The idea is to treat such amounts as if they were insurance proceeds. It is a wise idea for legislation to copper bottom this though!
Let me know if I am too obscure?

Remember the days when people like Morgan said there was a bubble. The standard lazy question they got from RTE interviewers was “why don’t you sell your house?” There is an equivalent question that could be posed today (and buying stuff with other peoples’ money doesn’t count).

@Brian: amazing. Or perhaps not.

Because, for property price rises to be any good to NAMA they will have to beat both inflation and the coupons NAMA will be paying on the bonds (referred to as debt securities) it gives to the banks.

If they are right, a no lose bet.

The paper value of property and development loans NAMA is planning to take over from the banks is €90bn, however the current market value is far less. NAMA will pay the banks somewhere between those two figures, as it is required to take into account the long-term economic value of the property concerned.

So, the assumption is that prices have already overshot on the downside? Discuss.

To break them down:

1. “Reasonably expected to attain”: Is this to say that the current market is somehow unreasonable? Or is it expecting the future markets to be more reasonable? I do hope they learn to behave.

2. “Stable Financial System”: I’ll have to switch to my Barry Buzan here. He says that for a free-market to work it has to be inherently unstable. By this he means that for the innovation needed to drive future efficiencies, the actors in the market have to be fearful of ’staying still’ and thereby being over-taken by their competitors. Perhaps a ’stable financial system’ is one with zero growth. Or no banks.

3. Current Crisis Conditions Ameliorated: The current crisis conditions are illustrated by falling GDP and rising unemployment. The crisis conditions will be ameliorated when one stops falling and the other stops rising. Still not going to be a good spot. Maybe they meant ‘reversed’ instead of ‘ameliorated’?

4. Future price or yield: Lick finger, hold up in the wind?

5. Consistent with reasonable expectations: Is this water Peter Bacon was talking about when he referred to ‘Hope’ values? I’m sure a first time buyer could argue that they have a reasonable expectation that house prices will continue to fall.

6. Regard to the long term Historical average: Are they going to take the long-term historical average price of a green field into account?

`The Dormouse is asleep again,’ said the Hatter, and he poured a little hot tea upon its nose.

The Dormouse shook its head impatiently, and said, without opening its eyes, `Of course, of course; just what I was going to remark myself.’

`Have you guessed the riddle yet?’ the Hatter said, turning to Alice again.

`No, I give it up,’ Alice replied: `what’s the answer?’

`I haven’t the slightest idea,’ said the Hatter.

More tea Lenny?

5 assumptions there I think….

“reasonable” is the get out card. The question is reasonable to the taxpayer or banks/developers.
@Bill
“The fundamental purpose of the legislation and NAMA is to get the banks lending again by removing the current pressure the impaired loans are placing on their capital requirements”.
The evidence is that the banks in the UK and US have reduced their lending following their bailouts. The assumption that Irish Banks will provide necessary credit is flawed.

That is the best decription of the goal of NAMA, I’ve read. Somebody somewhere must have came to the conclusion that this is worth 60Billion.

I guess that the current aproach will do this but at the cost of rendering Ireland insolvent or just broke for decades.

My comments on NAMA were how I believe it should operate. As the biggest meanest vulture capitalist in the state which owns everyone that owes it money and cant pay it back, not a get out of jail card for toxic debt holders.

Just because buyers and sellers have different expectations doesn’t mean the market isn’t functioning. A period with no transactions is reasonable, especially when a major correction is happening. Government interference (and banks facing insolvency) have also contributed to a low level of transactions – they seemed quite upset by ACCBank.

Re ” If there is no finance for development then how can the market take account of genuine development potential?” – a purchaser can price this risk in. It just means that the price is lower.

http://www.finance.gov.ie/documents/pressreleases/2009/bl103drftleg.pdf

Thanks for expanding on the risk element.

There are certainly a number of conflicts:

State -v- Bankers
State -v- Bondholders
Bankers -v- Developers

The information disequilibrium between the State and the bankers is the most dangeous.

However, I think you have misunderstood some things:
- Firstly, developers will have no say in whether, how or at what price they are brought into NAMA.
- Secondly, NAMA will buy the loans and securities. For each item of security, the bank will have to submit a due diligence checklist. Any fraud or short-comings will be discovered pre-transfer.
- Thirdly, everybody has the option to stay out of NAMa by paying off their loans.
- Fourthly, the Banks cannot be allowed to pick and choose what goes into NAMA as nobody has confidence in them not to over-estimate the value of assets. The purpose of the exercise is to convince the world that namafied recapitalised banks are solvent.

My main concern about NAMA at this stage is what is being left out, not what is going in.

Oh yeah, I forgot, NAMA only employs a handful of people and the banks will continue to administer the loans.

Silly me..

mu_t is a risk premium capturing all the elements of risk associated with one income stream being more uncertain than another. For example, because stocks are riskier than bonds, investors expect a higher rate of return. In my opinion, there is a lot of uncertainty now about the final destination of the Irish property market, so I would argue that the risk premium for making these investments now should be very high.

While interpolating a model on historical data can be done, but as the investors in LCTM found out, extrapolating it reliably through turbulence into the future is another matter. I believe these times are turbulent and as a consequence I do not believe anyone with certainty can pick the model which will give an accurate value.

However, I do not believe it matters what price is being paid.

My belief is that either the insolvent banks and insolvent developers are liquidated and the productive parts of their businesses recycled or the Irish people and the Irish companies will have to pay for the losses the banks and developers have incurred.

The payments to the banks from the Irish people and Irish companies will either be one of two ways below (or as it seems a combination of both):
-be channelled through artificially high interest rates on borrowings, artificially low interest rates on saving and high fees. (they can do this due to the current lack of competition)
or
-through NAMA and a higher tax bill

The decision of whether or not NAMA is to be used at all or instead letting the banks be liqiudated is more relevant to how the Irish peoples money is to be used for creating long term value.

Some more thoughts about NAMA:
if the government were to buy assets for 45 billion which I presume the sellers have carried in their books at 90 billion. Wouldn’t that force the sellers to book losses of 45 billion for the year?