Playing with words over definition of `deal'

If AIB believed it had an agreement, then what did the Revenue believe? The Dail Committee of Public Accounts may have to come up with a definition of exactly what a deal was, much like US courts have had to come up with definitions of other matters in the Clinton affair.

Did AIB and the Revenue have bodily contact in the form of a handshake? Or is a nod and a wink between "consenting adults" - to use the AIB chief executive's phrase - enough? AIB is adamant that it had an agreement. And from the evidence it does appear that Revenue officials did lead them to believe that they would not be looking for back-tax on DIRT payments due. Otherwise why did Revenue not ask AIB for an estimate of what their tax liability was in this area? The Revenue, meanwhile, will continue to push the argument that they were not given full information on the issue. One of the key questions is whether they asked, or decided that they didn't really want to know.

One result of the affair will be a questioning of the Revenue approach of doing "deals" with taxpayers and accepting less than the full amount due.

What precisely happened in the AIB case has still to be revealed. And one outstanding question is just how much tax was owed on bogus non-resident accounts held in the banking group? The bank has rubbished the £100 million estimate put forward by its former internal auditor, Mr Anthony Spollen.

But this estimate resulted from the views of the group tax manager, Mr Jimmy O'Mahony, that 60 per cent of the 87,600 non-resident accounts were bogus. Mr O'Mahony told Mr Spollen in early 1991 that £10 million would be due as tax on these bogus accounts in a half-year.

Mr Spollen quite reasonably calculated that this would be £20 million for one year and £100 million for the five years since DIRT was introduced in 1986. It might not be a precise calculation - after all the amount of accounts would vary from year to year, as would the total funds held in them - but AIB has yet to come up with another estimate.

None of the correspondence so far in the public domain indicates that the O'Mahony/ Spollen figures were treated as the kind of back-of-the envelope calculations now being portrayed. Mr Spollen now looks set to accept the invitation of the public accounts committee and may well tell the committee that he believes the estimates were drawn up reasonably, on the basis of the figures available at the time.

If the outstanding tax liability was small, it is unlikely that the AIB board would have been told that clearing up the accounts was a matter of importance and sensitivity for the bank and for the economy. We are certainly talking about tens of millions of pounds.

The AIB view that it was an industry-wide problem is no doubt correct. However, it does appear that the problem was particularly bad in AIB right up to the start of the 1990s. Clearly some branch managers in AIB - and no doubt in other banks - were not so much turning a blind eye to bogus non-resident accounts as actively offering them as a service to customers. The scale of tax evasion was immense and everyone knew about it. The question now is what to do about it? In the 1993 tax amnesty, some £1.5 billion of unpaid tax liability, much of it held in bogus non-resident accounts in the State, was "cleaned". The DIRT liability was a side issue: most of the money was never subject to any kind of tax and this was the main motivation of the bogus non-resident account route.

A special - and fairly nominal - tax rate of 15 per cent was offered to errant taxpayers in what the Fianna Fail/Labour government of time decided would be a "forward-looking" deal, aimed at bringing evaders into the tax net and forgiving past sins.