AIB may be prepared to pay up to £150 million in settlement of its liability for unpaid Deposit Interest Retention Tax (DIRT) interest and penalties on bogus non-resident accounts held at the bank between 1986 and 1999.
But while the bank would like to finalise the issue with a settlement, it would consider legal action if the Revenue demand is in excess of this figure, according to sources.
The sources maintained that AIB's internal estimate of its liability has been increased mainly because of a change in the Revenue Commissioners' practice on interest charges on unpaid taxes.
In addition, they said, the audit appears to be finding a higher number of bogus non-resident accounts and accounts where documentation has not been properly completed than the bank expected. They maintained this internal estimate of liability now stands at over £50 million.
Estimates of AIB's liability have ranged from the bank's earlier estimate of a maximum of £35 million to £300 million. While the Revenue audit of the AIB accounts is not completed, sources suggested AIB will be prepared to pay a settlement sum of between £100 million and £150 million "to get this affair behind them".
An AIB spokesman would not comment yesterday on the size of a possible settlement while "the audit of non-resident deposit accounts is still ongoing". Asked if the bank had increased its estimate of liability for DIRT, interest and penalties in the light of the Revenue application of full interest on unpaid tax, he declined to comment.
AIB chairman Mr Lochlainn Quinn said yesterday the Revenue's audit at AIB was not complete. Asked after the Small Firms' Association annual lunch whether a settlement could be agreed before the Revenue reported to the Public Accounts Committee in November, he said "I'm not going to predict. I would hope so."
In its dealings with the 37 financial institutions whose non-resident accounts it is auditing, the Revenue has abandoned an earlier practice of capping interest charges on unpaid tax so that interest charges were no higher than the tax liability. Factoring in interest charges capped at 100 per cent of their tax liability meant the banks underestimated their total Revenue bill.
In addition, as AIB pointed out in its recent interim financial statements, how the Revenue deals with accounts which belonged to genuine non-residents but where documentation was not properly completed could affect the size of the bank's final DIRT settlement. The bank said that from 1986 the Revenue did not impose a liability for DIRT where all the documentation details were not properly completed but the account was that of a genuine non-resident.
Five financial institutions have settled with the Revenue, which has so far brought in £63.3 million through its trawl on non-resident accounts.
All the financial institutions that have settled have paid multiples of their own estimated liability. Bank of Ireland paid the Revenue £30.5 million after estimating its total liability at £2.8 million and Ulster Bank paid £4.2 million compared with an estimate of £0.9 million.
Once the audit of the institutions is completed, the Revenue will move on to the individual bogus non-resident deposit account holders it has already identified through the audit.