Pick-me-ups, or PMUs for short, were the name given by party fund-raisers to a certain way of collecting money. Party donors would literally pick up the bill for certain expenses incurred by the party, typically chipping in at election time to help pay for posters, leaflets or an advertising campaign on radio or TV.
The Revenue Commissioners are now set to examine whether this process involved any breaches of tax law, but for the donors the main attraction was probably that it gave them a discreet way to chip in to party funds. Pick-me-ups were used by the three main political parties, Fianna Fail, Fine Gael and Labour, with friendly companies being used in the middle of the transactions.
The three parties are all believed to have had advertising agencies which were happy to accept payments from donor companies for work carried out on campaigns. And Fianna Fail's main fund-raiser for many years was Mr Paul Kavanagh, whose company Irish Printers undertook work for the party and participated in PMU deals.
The affair has now come to light because the Fitzwilton donation of £30,000, eventually paid over to Mr Ray Burke, was originally designed as this type of deal. Sources close to both sides say that Fitzwilton originally approached a Fianna Fail fund-raiser, Mr James Cawley, and said the company wanted to contribute towards the party's printing costs.
The deal was then agreed between the party, the company and Irish Printers that Fitzwilton would pick up £30,000 of the cost. Given that the financial rearrangement involved a number of Fianna Fail personnel, it seems inevitable that people in the party knew about the intended donation, which makes the subsequent confusion over the source of the money even harder to understand.
Once the deal was agreed, Irish Printers issued an invoice for £30,000 either to Fitzwilton or to its Rennicks subsidiary, as one company would normally do to another when money was owed. It should be emphasised that this invoice was for work legitimately carried out by Irish Printers. Mr Kavanagh and the other Fianna Fail fund-raisers expected the money to be forwarded in due course. However, for some reason, Fitzwilton and Rennicks then decided to pay the money directly to Mr Ray Burke. Company sources say that Fitzwilton executives were busy on some major acquisitions at the time and were happy for the funds to be paid through Rennicks directly to Mr Burke. Rennicks was located at the time close to Mr Burke's constituency, and another recently-acquired Fitzwilton subsidiary, the Novum refrigeration company, was in the constituency.
Sources say Mr Burke had met some trade delegations which travelled to Ireland to visit Novum. Fitzwilton has said that Mr Robin Rennicks of Rennicks and Mr Paul Power of Novum handed the money over to Mr Burke, on the understanding that it was destined for Fianna Fail head office.
Whatever the reason for Fitzwilton's decision to switch from the original agreement to pay via Irish Printers to giving the money to Mr Burke, the company believes that the issuing of the original invoice demonstrates clearly that the money was intended for Fianna Fail and not personally for Mr Burke.
It is not commenting further on the issue, however, saying it has been advised to wait to state its position to the Flood tribunal. While it has said from the outset that the money was accounted for properly, it will also not comment on precisely how it was treated in its books.
Sources suggest that as the £30,000 was not paid through the agreed original route to Irish Printers, the printing company would have had to effectively cancel the invoice. It would have probably done this by issuing a credit note to Fitzwilton, to the effect that it owed Fitzwilton £30,000. This would have allowed Irish Printers to square the transaction in its books.
However, if such a note was issued - and neither side can confirm whether it was or not - it is unclear if the money was then noted in Fitzwilton's books as a direct contribution to Fianna Fail.
THE Revenue Commissioners, while they would not comment yesterday, will now be examining the PMU system, to see whether it was properly treated for tax purposes, and already have documents from Fianna Fail.
On the face of it, there would not appear to be any tax implications for the companies in the middle of the transactions, such as Irish Printers. They would have issued invoices for work done for the political parties to the donor companies and presumably would have paid VAT in the normal way.
Questions do arise for the donor companies. If they pay the bills out of after-tax profits, then no tax issues would arise. After all, it is up to a company and its directors to decide what to do with the profits they make. However, if the bills were counted as a normal expense towards the running of companies, the Revenue could be looking for some money from the companies involved. This is because writing political donations off as a business expense would reduce the amount of profit that the company would declare to the tax authorities and thus reduce their corporation tax bill.
In the late 1980s the main rate of corporation tax was 47 per cent, while the manufacturing rate paid by companies such as Rennicks was 10 per cent. The VAT treatment of the transactions will also be examined by the Revenue. Fitzwilton will not comment on how the transaction was treated in its book or in the Rennicks accounts, apart from saying the donation was from the parent group.
The main attraction to donor companies of the pick-me-up system was probably not related to tax. Rather it was that this system allowed a discreet way for them to give money. The item would appear in their accounts as a payment to the intermediary company and the political party would not be mentioned.
Also, sources say that many companies had marketing and promotions budgets available out of which such payments could be made, while they would have no budget set aside for party political donations. But now that the practice is exposed and, given the new declaration rules for political funding, the day of the PMU is probably over.
