An English court is deciding whether Bord Gáis should incur a €50 million tax liability with the Inland Revenue in Britain.
The case relates to a €121 million lease entered into in 1993 by a subsidiary of Barclay's Bank with Bord Gáis on part of the gas interconnector that links the Republic with Scotland. Capital allowances claimed by Barclay's in respect of the lease are in dispute.
Outstanding for six years, they were the subject of an appeal taken by Barclay's Asset Finance, formerly Barclay's Mercantile, which was heard at the High Court in London on June 11th. A judgment is expected in September.
The interest charge on the potential liability increased by almost €5 million last year.
Bord Gáis's latest annual report says the company may be required to make additional payments of up to €50 million "should the capital allowances be totally disallowed".
Such a development would be a significant setback for the State company, whose €1.3 billion capital programme prompted two major credit rating agencies to draw attention to its strained financial profile last week.
But the annual report said: "Based on legal and taxation advice received, Bord Gáis Éireann believes that the capital allowances claimed will ultimately be allowed."
While the 2000 annual report said revenue approval was outstanding, the 2001 report said the matter was in dispute. The nature of the difference between the Inland Revenue and Barclay's is unclear but is thought to centre on a point of law. The appeal suggests that an adverse judgment was delivered by the Inland Revenue.
A Barclay's spokesman said the matter had been heard before taxation appeal body the Special Commissioners last year. An Inland Revenue spokesman declined to comment, citing confidentiality.
The gas interconnector was built in the early 1990s and a second interconnector is under construction.
The dispute centres on the first interconnector, which was part-funded by the EU. The 2001 annual report said the effect of the financing arrangement was to reduce Bord Gáis's funding costs in respect of part of the interconnector, which cost €380 million.
"As part of the arrangements for the financing of the gas interconnector, Bord Gáis Éireann entered into a finance lease in 1993 for €121,241,643. The arrangement also results in Bord Gáis making available an equivalent amount by way of security," says the report.
"Contingent liabilities" listed in successive reports suggest the potential charge has increased significantly. In 1999, it was €40 million while in 2000 it was €45.71 million. The increase to €50 million is believed to reflect interest fees.
