£17.5m tax liability not a real sum - bank

A potential ACC bank DIRT tax liability of £17.5 million was a mathematical figure and never intended as a real calculation, the bank's auditor told the inquiry.

It also heard that an amount for DIRT liability was not included in the bank's accounts for 1992 because the auditors did not believe that the Revenue would pursue it for DIRT arrears.

Mr John Hogan, chief external auditor and senior partner with Ernst & Young, said he believed the real liability was about £700,000, but he accepted that the Revenue disputed this.

He was being questioned about a long form report which Ernst & Young had prepared in 1992 for the bank as part of the process of privatisation. The auditors looked at non-resident accounts with more than £20,000 in them at eight branches and found that 55 per cent of them did not have correctly filled declaration forms.

On the basis that other branches would show a similar position, they calculated that overall potential liability could be some £17.5 million.

Mr Hogan told Mr Sean Ardagh that there was no provision for DIRT in the 1992 audit because, based on the meeting his colleagues had had with the Revenue in February 1993, he "made the judgment that this liability was not likely to fall on the bank at that time".

He described the £17.5 million calculation as an "extremely prudent" figure allowing for the "absolute worst case scenario". He agreed it was more than double the bank's profits that year.

Mr Pat Rabbitte put it that a "positive alarm" should have been ringing when a company which was bringing in £8.5 million in profit had a potential liability of twice that amount.

Mr Hogan said they were looking at it with the benefit of hindsight and they now had a "feel for potential liability" for that period of £700,000.

He was asked by the chairman, Mr Jim Mitchell, if he would have stood by the £17.5 million figure if the meeting with the Revenue had not taken place.

"Well, I would have certainly had to make an assessment of what possible potential liability would arise," he replied.