First-half results from Allied Irish Banks, due this week, are not expected to be reduced by a Deposit Interest Retention Tax (DIRT) bill which sources suggest could be about £100 million. Analysts expect the bank to report an increase of about 11 per cent in first-half profits to between €585 million and €596 million. But the first-half profits due on Wednesday are not expected to include any provision for the bank's DIRT liabilities under the Revenue Commissioners' audit of bogus non-resident bank accounts.
Sources suggested that the Revenue discussions with AIB were well advanced and that the bank's liability could emerge at just under £100 million including interest and penalties. This would be well below market speculation which has stretched to over £300 million, but well ahead of the bank's own estimate that its maximum liability is £35 million. Earlier this month, Bank of Ireland disclosed a £30.5 million settlement with the Revenue, about 11 times the bank's own estimate of its liability. Industry sources said that there has been strong lobbying by all of the banks to get the Revenue Commissioners to separate authenticity problems from documentation problems in the assessment of the liability of the banks for unpaid DIRT. The banks want the Revenue to agree to pursue authenticity problems and to allow the banks to correct documentation problems without penalty.
If their lobbying succeeds, the banks' DIRT, interest and penalty bills would be much lower than if the tax charges were applied to all the accounts where problems have been detected. Industry sources suggested that if all the problem accounts were included, AIB's bill would be between £300 million and £350 million. Without the problem documentation accounts, that bill could be reduced to about £100 million, they said.
Authenticity problems involve accounts where the account holder is clearly resident in the State. Where banks treated such accounts as non-resident and failed to charge DIRT on interest earned, they have a liability for unpaid DIRT. Documentation problems involve accounts where it is accepted that the account holder is not resident in the State, but the banks made mistakes in the completion of the documentation required to establish the account as non-resident. Some of the 37 deposit-taking financial institutions involved in the DIRT audit are expected to finalise settlements with the Revenue within weeks. While the Revenue will not announce the settlements, it is understood that the banks involved will do so and that there could be a number of announcements in August. But it is understood that AIB has not yet ruled out going to court on the grounds of its claimed amnesty arrangements with the Revenue between 1986 and 1991.
First-half profits in a range of €585 million to €596 million would compare with a previous first-half outcome of €542 million. In a recent trading statement, the bank indicated it was in line to deliver low double-digit growth in earnings per share this year.
In the six months to end June, the group benefited from a strong domestic economy where good volume growth in business helped to offset tighter profit margins in some areas. This week's results are expected to show good growth in business banking in the UK and Northern Ireland.
In its overseas operations, the US is expected to produce results in line with the relatively weak banking sector, while the Polish operations are still being built up and consolidated.
