The Revenue Commissioners and Allied Irish Banks now seem to be in disagreement as to the nature of the DIRT payments made by the bank in 1991.
The bank seems to believe that the initiative taken by the Revenue in February 1991, which led to the bank increasing its DIRT payments by £9 million for 1990/1991, and £5 million for 1991/1992, involved a deal on retrospection. In other words, if the bank cleaned up its non-resident accounts, it would not have to pay DIRT due on bogus accounts from before April 1990.
As DIRT tax on deposits was introduced in 1986, the period in question thus covers the 1986 to 1990 and payments which the bank would be due to make for that period on behalf of its depositors.
The fresh documentary material published in the Vincent Browne column in The Irish Times today includes a quote from a memorandum written by Mr Jimmy O'Mahony, AIB group taxation manager, dated February 1991 and written in the wake of a meeting with Revenue officials. It states: "Revenue accepted that a determined effort had been made to ensure that, as at 5th April 1990, all non-resident accounts exempted from retention tax were genuine, and now wish to provide AIB Bank, together with all other financial institutions, an opportunity to `put their house in order' with no retrospection, prior to 5th April 1990."
The Revenue, for its part, is saying there was no agreement on retrospection between it and the bank in 1991, and even that there was no tax "settlement", as such.
The chairman, Mr Dermot Quigley, told the Dail Committee on Public Accounts yesterday that "the onus was on the bank to pay the appropriate amount" of unpaid DIRT discovered during the 1991 examination of non-resident accounts.
The Revenue is now in possession of copies of AIB internal audit documentation from the period, which has been referred to in the media. The documentation is being examined and "we are pursuing with them (AIB) the question of the tax liability to the Exchequer".
"AIB apparently takes the view that there was to be no retrospection for DIRT but this view is not supported by the documents that have been received and Revenue is not accepting it," Mr Quigley told the committee.
What has not yet been explained is how the former AIB group internal auditor, Mr Anthony Spollen, estimated the bank's contingent DIRT liability in 1991 as about £100 million. What also remains unclear is the period to which this estimate referred. These are among the issues which AIB is expected to tackle in a detailed statement to be issued when its chief executive, Mr Tom Mulcahy, appears before the public accounts committee tomorrow.
In a letter, dated April 5th, 1991 and published in last week's Magill, Mr Spollen wrote: "The group taxation department has informed me that an amnesty cannot be given without legislation going through the Dail: the group therefore has a contingent liability of c£100 million in respect of DIRT."
If the bank believed that a deal on retrospection was involved, then Mr Spollen, as internal auditor, might have been anxious to have it in writing. Otherwise a potential liability - the unpaid DIRT from pre-April 1990 - would go un-recorded in the bank's accounts.
Mr Spollen wanted a letter from the Revenue Commissioners confirming that an "amnesty" was being offered to the bank - and all the other financial institutions - for the period prior to April 6th, 1990.
Mr O'Mahony wrote to Mr Spollen in February 28th, 1991: "A situation such as this is extremely delicate. To seek what you require would mean legislation and this is not desirable for this type of issue."
When Mr Mulcahy appears before the committee tomorrow, he will be asked for the bank's understanding of its DIRT liability at the time of the 1991 Revenue initiative, and whether it believed an agreement was entered into at the time in relation to retrospection. He will also throw more light on the bank's view of Mr Spollen's assessment of the DIRT bill and to what period it referred. However, these matters are at the heart of the ongoing discussions between the Revenue and the bank, discussions which could yet lead to the bank being served with a substantial tax bill.
Other issues remain to be addressed. One is what AIB did with the money in the bogus non-residents accounts, much of which appears to have been loaned to others by its AIB Finance subsidiary; another is whether any of it was improperly sent offshore to help finance loans at lucrative rates in the offshore market for the Irish currency, which existed at the time due to the presence of exchange controls.
