QUESTIONS remain to be answered about the tax implications of the deal done between Mr Michael Lowry and Dunnes Stores, according to tax advisers. Mr Lowry has so far not gone beyond saying that the money from Mr Duane was a "credit facility" and that he will explain the full details at a later date.
Sources dose to the former minister say the loan was extended by Mr Dunne as part of an arrangement under which Dunnes would later pay a bonus to Mr Lowry. It appears that at least some of this arrangement may relate to work which Mr Lowry will contend he carried out personally for Dunnes Stores as a consultant. The bonus would then be taxable, according to the sources, and Mr Lowry would repay the loan out of after tax income.
Tax experts say that the structure of the arrangement was most unusual. They point out that if the money from Dunnes to Mr Lowry was a straight payment, it would have obvious income tax implications.
Mr Lowry has said, however, that it was a loan. In this case the Revenue Commissioners would be likely to examine a number of angles. If the loan was a simple one from Dunnes to Mr Lowry, then a tax liability may not be incurred. But the loan does appear to relate to business conducted for Dunnes by Streamline.
Tax experts say the Revenue Commissioners could seek to examine this from a number of viewpoints. Assuming a commercial rate of interest was not paid on the loan, the Revenue could contend that the money was subject to benefit in kind taxation, which could incur a tax liability. A crucial issue here will be whether the loan given to Mr Lowry was purely for work he did personally on behalf of Dunnes, or whether some of it relates to work done by his company, Streamline. The method by which Dunnes Stores pays bonuses could also accrue a tax charge.
Mr Lowry has said that he does not expect to have any difficulties with the Revenue Commissioners in relation to the deal.
The way the deal was structured also has implications in terms of VAT Dunnes Stores appears to have charged the £208,000 cheque against work conducted at the ILAC Centre. The company would get a VAT refund on this money. As the money was used to upgrade a personal residence, however, a VAT refund would not have been payable.
Residential Property Tax would also have been due on the residence. Often, if the owner of a house spends a large amount of money on his or her home, the Revenue Commissioners assume that the market value of the house has risen by the amount in question for Residential Property Tax purposes.
Tax inspectors are also likely to demand of anyone carrying out large scale home improvements an explanation as to where the person obtained the money to pay for it.
