AIB declines to comment on treatment of DIRT liability

Financial results due from Allied Irish Banks this week will be examined for an indication of how the bank intends to deal with its liability for Deposit Interest Retention Tax (DIRT), interest and penalties.

AIB will be the first bank to report full-year results since the Committee of Public Accounts (PAC) sub-committee reported the findings of its investigation into the widespread evasion of DIRT at the Irish banks and building societies in the 1980s and 1990s. The Revenue Commissioners are currently carrying out audits of all the financial institutions to assess their liability for tax, interest and penalties on bogus non-resident accounts and other accounts where the bank documentation was not in order.

Under "look-back" provisions, the Revenue is investigating accounts back as far as 1986. Estimates of the potential tax liabilities of the 37 financial institutions have been put at over £1 billion. But the audits are complicated by the absence of documentation in some cases and the absence of computer records back to 1986. The Revenue is due to report its findings to the PAC sub-committee by September.

AIB yesterday declined to discuss how it would deal with its liability. A spokeswoman said that the bank was now in a "closed period" before its results and prohibited under Stock Exchange rules from making any comment concerning those results.

Under accounting rules which require any reporting company to show a true and fair view of its financial position, the bank could be expected to make a provision for the expected cost of the tax, penalties and interest bill.

However, the issue is complicated because the size of that bill is as yet unclear and, in AIB's case, the bank is disputing any bill on the ground that it maintains that it had an amnesty arrangement with the Revenue.

According to one accounting expert, "in the case of AIB the issue is more complicated because there are conflicting views on whether any money is owed, and, if money is owed, how much is involved. The bank could argue that if it put in a provision, that would be the same as admitting that it owed that amount of money". Another accountant suggested that making a provision for money in dispute would send the wrong signal. "It would be like owning up and if the bank can stand up its argument that it had an agreement with the Revenue, it may be more prudent not to make a provision," he suggested. AIB may decide to indicate a contingent liability - a payment which may arise in the future - in the notes to its accounts, without giving any figure for the potential bill.

But with a once-off punitive levy on the banks as a penalty for tax evasion now ruled out as unconstitutional by the Attorney General, the Revenue is not expected to show any leniency to offending institutions.

Any danger that the heavy Revenue bills faced by the banks could destabilise the banking system has been firmly rejected by Central Bank Governor Mr Maurice O'Connell.

In his closing submission to the DIRT investigation he said: "I can categorically say that even in the most extreme assumptions, DIRT tax liability did not at any time pose a threat to institutions supervised by the Central Bank. Figures have been mentioned about potential or hypothetical liabilities. Even if such liabilities were realised in full it would not constitute a threat."