The main banks are now likely to face a tax bill running into many millions of pounds, after an audit of their outstanding DIRT liabilities is undertaken by the Revenue Commissioners. On the basis of what the Public Accounts Committee has discovered, the total bill could amount to at least £200 million.
The collection of the overdue tax, along with potentially punitive interest and penalties, is the central recommendation of the report of the Dail Public Accounts Committee DIRT inquiry, published yesterday. It contains scathing criticism of the banks and the Revenue Commissioners.
It also finds there was no agreement between AIB and the Revenue Commissioners that the bank would not pay its pre-1991 DIRT liabilities.
The report also recommends further financial penalties on the banks, by way of a contributions to charity from a levy imposed as a means of "reparation" to society and from the confiscation of money lying in dormant bank accounts.
The Government will have to decide whether to go ahead with these measures. However the immediate concern for many of the banks will be Revenue audits to determine their outstanding tax bills, which are already underway in 21 of the main institutions. The Revenue will first have to prove a liability exists and can then raise an assessment for the amount owed, plus interest.
The financial institutions' tax bill could rise substantially further if the Revenue successfully imposes penalties on the basis of proof that fraudulent returns were made, but it will be some months before even the basic liability can be accurately estimated.
The report finds the opening of bogus non-resident accounts to evade DIRT was an "industry-wide" problem across the banks and building societies in the late 1980s and early 1990s. It is strongly critical of the boards and management of a number of the major financial institutions and of the Revenue Commissioners, the Central Bank and the Department of Finance for not taking stronger action. It accuses the Revenue of not applying the law equally among different categories of taxpayers.
The committee has also called on the Government to initiate a review of the operations of the Revenue Commissioners and a separate review into the roles of the accountancy firms which audit financial institutions. The Taoiseach has promised that the Government will respond to the DIRT report "as quickly as possible". It is expected to be discussed by the Cabinet on Wednesday. The Department of Finance may be asked to catalogue the necessary actions required to implement the various proposals.
A main focus will be on the likely liability at AIB, the State's largest bank. The DIRT report dismisses AIB's contention that it had an effective tax amnesty with the Revenue on tax liabilities from 1986 to 1991. AIB has said the most it owes in unpaid DIRT is £35 million, well below the £100 million estimate of its former internal auditor, Mr Tony Spollen.
However, if the Revenue can even establish that a liability of £35 million existed in 1991, then the addition of interest under Revenue rules could bring the total bill to at least £120 million, or more if the Revenue seeks to impose further penalties. However, AIB is likely to contest strongly the existence of such a liability. It said last night it was not commenting as it needed further time to study the report.
The liabilities of a number of other banks are also likely to be substantial. The report is also critical of ACCBank, stating it was "improper" for the bank not to inform the Minister for Finance of a potential £17.5 million tax liability in 1993.
The five ministers for finance who held office during the 12 years were largely absolved of any wrongdoing in relation to the collection of DIRT.