A committee was set up within the Bank of Ireland group in 1986 to examine ways of avoiding DIRT payments on behalf of its customers, the DIRT inquiry was told.
A letter from an Investment Bank of Ireland (IBI) official, Mr John Sherlock, described DIRT as "the withholding tax problem", stating that the committee would try to devise mechanisms "which would enable the bank to continue to pay interest in a gross form to its clients without deduction of the withholding tax".
Mr Joseph Kerrane, a tax partner with PricewaterhouseCoopers, said he took the statement to mean that the imposition of DIRT would have a negative effect on the bank's business "and it was seeking to investigate methodologies whereby that negative effect might be lessened".
Mr Kerrane, who was responsible for technical advice on taxation, including DIRT, said he had not been a party to the letter.
He was also closely questioned about his input into a meeting he held with IBI staff in January 1991 on the application of DIRT on accounts with both debit and credit balances. The practice was to pay DIRT on the net account, reducing the bank's liability.
According to Mr Kerrane's minute, Mr Sean O'Dwyer, head of IBI's fund management division, raised his concern that the practice had existed since the introduction of DIRT in 1986 and if there were problems with it, "exposures could be massive". A potential liability of £750,000 was later identified in relation to the non-payment of DIRT on the gross interest.
Mr Kerrane subsequently stated that he could not guarantee that the arguments in favour of the practice were strong enough "to withstand a serious Revenue challenge". But he concluded that, "on balance", IBI could take the view that it had operated DIRT correctly and was not obliged to go to Revenue on the matter.
He recommended advice be sought from legal counsel on the nature of the contractual relationship between the bank and its customer, although advice was instead taken from the group legal adviser, who concurred with Mr Kerrane.
Asked by Mr Pat Rabbitte whether there had ever been discussions with the Revenue Commissioners on the issue, Mr Kerrane said there had not been because the tax issue had been cleared with them in 1987.
He was also asked about advice he gave that he thought it would be unreasonable for Revenue to oblige bank officials to rely on local knowledge garnered from outside the bank.
"On the other hand, if the information had become available to the bank, for instance, through loan applications or other business transactions, I felt it would be reasonable to assume that he should take account of it in determining the non-resident status of the individuals concerned," Mr Kerrane stated in the 1990 letter.
He said a Co Donegal assistant manager had raised the query which centred on the expression `not ordinarily resident', "a highly technical term". He believed a bank official in those circumstances "would have to tread very carefully". If he got it wrong, he was possibly leaving himself open to having either a bad customer relationship or possibly being accused of defaming the individual, he said.