Weak Revenue case improved Haughey's hand

With the former taoiseach's financial affairs shrouded in mystery, Revenue was forced away from its threatened enforcement route to one of negotiation, writes Colm Keena

Charles Haughey's accountant in his dealings with the Revenue Commissioners said this week he believed the Revenue officials involved conducted themselves professionally.

Two of the senior Revenue officials involved, Norman Gillanders and Stephen Treacy, have said in sworn evidence to the Moriarty (Payments to Politicians) Tribunal, they were satisfied with the settlement they negotiated with the former taoiseach.

However, media reporting and analysis of the settlement in the wake of recent tribunal sittings, in particular in the Sunday newspapers, have raised questions as to whether Haughey was treated less harshly than he might have been because of who he is.

A number of aspects of the case have been mentioned in this regard, including:

the decision to raise gift tax and not income tax on the monies received by Haughey;

the decision not to prosecute;

interest was capped at 100 per cent and no penalties of any significance were imposed;

Haughey did not have to suffer the ignominy of having his name appear in the tax defaulters' list in Iris Oifigiúil.

Haughey, through his advisers, agreed to pay €5 million in settlement to discharge tax liabilities arising from receipts over the period 1977-1997, exclusive of some payments from Ben Dunne identified in the 1997 McCracken Report, which led to an earlier £1.28 million (€1.84 million) negotiated settlement.

A former Revenue official, Paul Moore, acted as tax agent for Haughey while Des Peelo acted as accountant. On the Revenue side, Gillanders, Treacy and Brian McCabe were part of a team that worked on the Haughey case. The Revenue board took a direct interest.

Haughey's position was that he did not know who gave him money over the period concerned, or even how much money he was given. He claimed the late Des Traynor handled his financial affairs and he, Haughey, did not concern himself with the details. Haughey's advisers pointed out that he was not obliged to keep books of account.

The Revenue, then, was stuck with a case where it did not have a complete picture of where Haughey's money came from or how much of it there was. Records existed from a bill-paying service run for Haughey for the period 1985 to 1997. In the main, the funds for this service came from the secretive Ansbacher Deposits.

The Revenue also had certain payments and loans it was aware of by way of the tribunal. It decided it could arrive at a global figure by adding the known expenditure and known receipts while subtracting those receipts that it knew had gone towards funding known expenditure.

In this way, it arrived at a number of estimates, depending on what figures were included. The maximum figure arrived at was one of €12.57 million (in other words, an estimate that Haughey spent, and therefore must have received, €12.57 million during the 20-year period being reviewed.)

Haughey's income from politics was not counted as he had a practice of cashing his monthly cheques and not banking the money. However, this was an outside figure and the Revenue believed a lower figure of about €9 million was more likely to emerge as an agreed figure.

A basic point, of course, was what tax, if any, should be applied. The possibility of applying income tax was dismissed as income tax can only be levied on income that arises from the practice of a trade or profession, or an investment in property giving rise to rent.

This left gift tax, which was levied at 40 per cent. However, gifts of property not domiciled here, from persons domiciled abroad, were not liable to gift tax.

The Revenue received a nasty, and very public, setback in 1999 when the Appeal Commissioners ruled against its tax bill on Haughey arising out of the McCracken Tribunal. The reason was the Revenue had not shown where exactly the payments at issue had originated.

Haughey's financial affairs are shrouded in mystery. They involve offshore banks, offshore accounts, offshore trusts and convoluted money trails. The main architect of all of this, Traynor, died in 1994. Haughey claims he did not know what was going on.

Also, the Revenue was using expenditure figures as a proxy for much of Haughey's receipts. But this said nothing about where the money came from.

In other words, the Revenue's case was very weak, and it knew this. Gillanders estimated that the Revenue could prove, in a court of law, a liability for tax of approximately £2.7 million.

In early 2002, having danced around each other for a bit, the Revenue and Haughey's agents started to haggle. The Revenue threatened to go down the enforcement route - but they believed Haughey's advisers were aware of the weakness of the Revenue case.

The negotiations led to an agreed core expenditure figure of €8.76 million, which would indicate a tax liability of €6.98 million. But Haughey's side looked for some concessions, based in essence on the agreed weaknesses of the Revenue case. Eventually, and following contacts with the Revenue board, a final settlement of €5 million was agreed.

The settlement involved tax of €2.74 million, 100 per cent interest (€2.74 million), and penalties of €60,000. The Revenue has said capping interest at 100 per cent is its invariable practice in gift tax settlements.

Treacy said in evidence that initiating a prosecution process against Haughey would have been "in conflict" with seeking to negotiate a settlement. An obvious point.

Haughey's name did not appear in Iris Oifigiúil because the settlement did not meet the terms required, meaning the penalty involved was not greater than 15 per cent of the tax.

Treacy agreed with Mr Justice Michael Moriarty that the Revenue did not take a tougher line in Haughey's case because it was aware of the weakness of its case against him.