Income tax due from the Dunne family trust went unpaid for a number of years because the trust believed it had a special deal with the former Revenue chairman, Séamus Paircéir, the tribunal heard.
For a number of years confusion within the Revenue led one official to believe a special deal existed. The amount of tax involved totalled more than £700,000.
In November 1994 a member of the trust, Noel Fox, told a Revenue official that the trust had come to an agreement with Mr Paircéir during negotiations with the Revenue in 1987 concerning the trust's liability for Discretionary Trust Tax (DTT). He said the agreement had been authorised by the then chairman, Mr Paircéir, the tribunal was told.
The trust, in order to pay its DTT bills, had to be paid a dividend by the Dunnes group. Mr Fox said the agreement involved dividends paid to the trust for paying such tax bills, not being assessed for income tax.
Tadhg O'Connell, then a senior official with the chief inspectors branch of the Revenue and who attended the 1994 meetings with Mr Fox, said he recalled Mr Fox mentioning the deal. He said subsequent conversations he'd had at the time with Michael O'Grady, then with the capital taxes division and now a Revenue Commissioner, led him to believe that such a deal existed. In fact he was mistaken in this view.
The purpose of the 1994 meetings with Mr Fox was to discuss the writing off of capital gains tax against capital acquisitions tax, in the context of transactions arising from settling a dispute within the Dunne family that had led to High Court proceedings.
Mr O'Connell told Jacqueline O'Brien SC, for the tribunal, that it was his memory that both he and Mr O'Grady were surprised by the claim by Mr Fox concerning the alleged 1987 deal.
When the trust subsequently filed a return to the Revenue stating it had received a dividend of £2.2 million, Mr O'Grady instructed that no income tax be raised on the money. The tax, if it had been raised, would have been net of a credit for corporation tax already paid by the Dunnes holding company on the £2.2 million.
Mr O'Connell said he made this decision because he was quite convinced that an agreement was in place with Dunnes.
Some time in late 1996 or early 1997, Mr O'Connell again discussed the matter with Mr O'Grady and, Mr O'Connell said, the misunderstanding was cleared up.
Once the misunderstanding was cleared up, Mr O'Connell said he made inquiries in the Revenue and then issued assessments.
The tribunal heard that for the period from 1987 to 1997 the dividends paid to the trust, for the purposes of paying DTT, totalled £22.43 million. The amount of income tax due, after accounting for credits, was £700,460.
The trust appealed the assessments but when the matter went to the Circuit Court the trust settled and paid the taxes.
Mr O'Grady said he could not recall Mr Fox mentioning the income tax issue in 1994 and could not say how Mr O'Connell came to form the view he had formed.
