Trustees believed they had a special tax-free dividend deal with Revenue

Income tax that may have been due from the Dunnes family trust was not sought by the Revenue Commissioners until after the 1997 McCracken (Dunnes Payments) tribunal, the Moriarty tribunal heard.

It heard that an annual discretionary trust tax, levied from the trust from the 1980s, was paid with money the trust received, by way of dividend, from the Dunnes holding company.

The trust believed it secured a deal with the Revenue and its former chairman, Séamus Paircéir, in 1987, under which it would not have to pay income tax on the dividend it received from the holding company each year.

This dividend was used to settle its annual discretionary trust tax bill. This bill in 1990, when the Dunnes Stores group was deemed to be worth £220 million, was £2.2 million.

Liam Horgan, a retired tax partner with Touche Ross, Cork, and a former adviser to Dunnes Stores, said trustees Noel Fox and Frank Bowen "fervently believed" they had a deal with the Revenue in relation to the tax.

The dividend paid to the trust came with a tax credit arising from the corporation tax already paid by the holding company, so no income tax charge arose until a differential developed between the standard rate of income tax and corporation tax.

However, senior counsel John Coughlan, for the tribunal, said the Revenue never came looking for the income tax from the trust "even though the Revenue were receiving the discretionary trust tax and knew where the money was coming from".

The issue went to the appeal commissioners after the Revenue acted in 1998 and they decided they could not rule on the matter. It went to the Circuit Court and the trustees sought discovery of documents from the Revenue. The discovery order was granted, but the outcome of the case was not disclosed.

Mr Horgan agreed with senior counsel James Connolly, for the Revenue, that the Revenue could not have a private arrangement with a taxpayer that would override subsequent changes in the law.

A principal officer with the Revenue, Seán Ó Catháin, told senior counsel Jerry Healy, for the tribunal, that he had noticed nothing untoward about the Revenue's dealings with Dunnes in the late 1980s.

He continues his evidence today.