Moriarty tribunal: The Revenue was told in 1988 by its senior counsel he was "quite pessimistic" about winning an appeal against the Dunne family trust over a bill for £38.8 million.
The Revenue board and the inspector in charge of the case also opposed appealing the 1988 decision to the courts, the tribunal was told. No appeal was taken, and no tax was paid.
The tribunal was shown a letter from Nial Fennelly SC to the Revenue, written on November 15th, 1988, following the Appeal Commissioners' decision on November 11th in favour of the Dunne family trust.
The tribunal was also shown a Revenue note, written immediately before the commissioners' decision. After reviewing other steps possible in the case, it finished with: "At this stage it is felt that if the Revenue lose before the Appeal Commissioners, the matter will go no further."
Seán Ó Catháin, a principal officer with the Revenue, agreed with Hugh O'Neill, for the Dunne family trust, that the more the Revenue studied the matter, the more it began to fear it did not have as firm a case as originally thought.
Mr Fennelly, in his letter, said that, given the way the hearing had proceeded before the commissioners, he was not unduly surprised by the outcome. He agreed with the analysis on which the commissioners appeared to agree.
"I would be quite pessimistic about any chances of reversing the decision of the Appeal Commissioners on appeal."
The crucial point in the case involved whether the trustees had the right to revoke the original trust a day before it came to the end of its lifespan, and set up a new trust with the same trustees.
One of Mr Ó Catháin's working papers from before the hearing, when negotiations were conducted with Ben Dunne, noted that the Revenue's case against the Dunnes trust might not be great.
"You've asked a taxpayer for £38.8 million and here you're saying that on technical grounds the Revenue may not have a great case," said Jerry Healy SC, for the tribunal. "Would you not have made up your mind on that before making the assessment?"
Mr Ó Catháin said the events being looked at occurred 20 years ago. "I don't think it would be fair to make any inference that we acted unfairly," he said.
He said the Revenue would not issue an assessment it believed it could not justify. He said assessments "tend to be on the higher end of what the inspector felt could be justified." This was because many of these matters went to appeal, and there would be settlement negotiations.
He agreed with Mr O'Neill that the Revenue had played "hardball" with the trust in terms of the size of the assessment it raised in 1986. More than a year before the hearing before the commissioners, the then Revenue chairman, Séamus Paircéir, offered to settle the £38.8 million capital gains tax bill with Dunnes Stores for £16 million, the tribunal heard.
The offer was made soon after Mr Paircéir began discussions with Mr Dunne, having been asked by taoiseach Charles Haughey to meet the supermarket magnate.
Mr Ó Catháin told Mr Healy that the bill's reduction was an amalgam of a figure arrived at to reach a settlement and a genuine assessment of the tax owed.
He told Mr O'Neill the idea that there was a Revenue conspiracy to do the Exchequer out of funds was not correct.
Mr Healy said the Revenue files indicated that from the time of the first meeting between Mr Paircéir and Mr Dunne, there seemed to be an effort within Revenue to reduce the size of the bill that could be charged.
A note from Mr Ó Catháin in June 1987 noted his being told by Mr Paircéir that he and Mr Dunne had settled on a £16 million deal and that Mr Dunne had to think about it.
A note dated July 27th reported Mr Ó Catháin being told by two colleagues that the negotiations with Mr Dunne had "floundered".
"Apparently BD wanted to deal with CAT also now as if the beneficiaries had, or were taking the shares."
Mr Ó Catháin agreed that Mr Dunne might have wanted to break up the trust while availing of the lower valuation for the Dunne group that lay behind the £16 million settlement offer.
The tribunal hearings resume on Tuesday.