Further details of Dunne's tax affairs uncovered by tribunal

The Dunnes group had to return to the Revenue in 1996 and 1998 to deal with newly disclosed tax issues, writes Colm Keena, Public Affairs Correspondent.

Fresh details of the sometimes fractious relationship between the Revenue and Dunnes Stores during the 1980s and 1990s emerged this week at the Moriarty Tribunal.

The material concerning one of the largest and most secretive family concerns, shows the group "settled up" with the Revenue in 1994 in relation to its tax affairs, but had to return to the Revenue in 1996 and 1998 to deal with newly disclosed issues.

Since 1964 the shares in the holding company for Dunnes Stores have been held by a family trust, which on occasion has proved controversial. In 1994, one of the beneficiaries, Ben Dunne, argued in a court case he took against the trust and the family, that the trust was a sham and that he had been able to use money supposedly belonging to the trust, to make payments to Charles Haughey in the late 1980s and early 1990s.

Yesterday documents drafted for the McCracken Tribunal by the Revenue in 1997, were shown to the Moriarty (Payments to Politicians) Tribunal. Moriarty is currently investigating whether any favours were done for Dunnes Stores or Mr Dunne, in return for the almost £2 million which Mr Dunne gave the then Taoiseach, Charles Haughey, during the late 1980s and early 1990s.

The Revenue told McCracken of a dispute between the Dunnes family trust and the Revenue over whether changes in the trust arrangement in 1985 triggered a capital gains tax bill. The Revenue's bill of £38.8 million was shot down by the Appeal Commissioners, who ruled that no liability existed. The Revenue, in line with legal advice, decided not to appeal.

In 1994 submissions were made by the trustees as regards arrangements for the payment of the capital gains tax bill arising from a settlement of the clash with Mr Dunne referred to above.

Separate from the tribunal, The Irish Times has been told that what occurred was that Mr Dunne was given one-fifth of the shares in the Dunnes holding company by the trust. These shares were then immediately bought back by the holding company and cancelled. The amount paid was approximately £103 million and Mr Dunne made an immediate capital acquisitions tax payment of approximately £32 million. The overall transaction created a capital gains tax bill for the trust.

Up to the point of the settlement the trust held the shares in the holding company, with five members of the Dunne family being the beneficiaries of the trust.

Mr Cathal MacDomhnaill, chairman of the Revenue from 1990 to 1998, said yesterday that up to 1996 Noel Fox, a trustee with the family trust, was the main contact point for the Revenue in its dealings with Dunnes. In the period between 1994 and 1996 he had a number of meetings with Mr Fox and Margaret Heffernan - the sister of Mr Dunne who has headed the Dunnes group since 1993.

The first meetings were to do with Dunnes' wishes to make a voluntary disclosure arising out of matters that had been identified in a report drafted for Ms Heffernan by the Price Waterhouse accountancy firm. The 1996 meeting concerned the Revenue's request for a copy of the report, Mr MacDomhnaill said.

The Revenue's note to the McCracken Tribunal referred to these matters by saying matters that arose in the dispute with Mr Dunne involved untaxed income. "The liability on that untaxed income was computed and paid in 1994."

In late 1996 there were media reports of payments by Dunnes Stores to former Fine Gael minister Michael Lowry, during the period when Mr Dunne headed the Dunne group. The note to the McCracken Tribunal refers to these media reports and states that a copy of the Price Waterhouse report was given to the Revenue.

Over the past two weeks the tribunal has heard evidence concerning an arrangement the trust believed it had in place concerning income tax and Discretionary Trust Tax (DTT).

Since 1984 discretionary trusts have had to pay DTT, with the amount being a percentage of the value of the assets held by the trust. In the period 1984 to 1997, the amount of DTT paid by Dunnes has been £22.43 million.

In order to fund this the trust got a dividend from the Dunnes holding company. In the mid-1980s the tax rates that then existed meant that the write off of corporation tax against income tax left no tax to pay. However, the taxes subsequently began to diverge.

Dunnes did not pay the income tax that then arose and the Revenue did not seek it until July 1997.

Dunnes claimed it had a deal on the issue going back to 1987 and that this deal had been authorised by former Revenue chairman, Seamus Pairceir. However, the Revenue did not agree and the £700,460 in 1998 the income tax was paid .

Mr Pairceir is to tell the tribunal he is "astonished" by the claim made by the trust. After he retired as chairman in 1987, Mr Pairceir did some consultancy work for Dunnes. In 1996 he met with Mr MacDomhnaill and briefed him on behalf of Dunnes concerning its view that the DTT tax constituted a form of extra corporation tax that put the group at a competitive disadvantage.

In the late 1980s he gave advice to Dunnes concerning the £38.8 million capital gains tax bill, an issue he had worked on, on behalf of the Revenue, prior to his retirement.

The Revenue note to McCracken also referred to matters concerning the finalisation of the estate of the late Elizabeth McMahon - a beneficiary of the trust - and probate and inheritance tax issues arising from the affairs of another beneficiary, the late Therese Dunne.

The Revenue also told McCracken that the affairs of the Dunne family and its business empire were very considerable in terms of value and number of transactions.

In the 1986 to 1996 period, the Dunnes companies would have paid an amount approaching one billion pounds in taxes and duties.