Allied Irish Banks, p.l.c. Interim Results 30 June 2000

Business Wire, August 2, 2000

Notes

18 Memorandum items: contingent liabilities and commitments (continued) Deposit Interest Retention Tax

Deposit Interest Retention Tax ('DIRT') is a withholding tax introduced by the Finance Act, 1986. Financial institutions are required to deduct DIRT from interest payable on certain deposits with them ('relevant deposits') and make a return to the Revenue Commissioners ('Revenue') of the interest paid in that year and of the appropriate DIRT.

A financial institution is obliged to treat every deposit as a relevant deposit unless satisfied that it is not. When an institution has so satisfied itself, it is entitled to continue to so treat the deposit until it position.

An audit by the Revenue of AIB's compliance with all aspects of DIRT legislation has been under way since April 1999. The Finance Act 2000 includes a provision which requires the Revenue to report on their audits to the Committee of Public Accounts by 1 November 2000.

A wide range of uncertainties affect AIB's obligations in respect of DIRT. The outcome of a number of comes into possession of information which could 'reasonably be taken to indicate that the deposit was, or might have been, a relevant deposit'.

The legislation excludes certain deposits from the definition of relevant deposits. In particular it excludes a deposit in respect of which, the beneficial owner of any interest is non-resident, or is a company, charity or pension fund and, in all cases, an appropriate declaration in the required form is made to the financial institution. The legislation also provides for a reduced rate of DIRT to apply to 'special savings accounts' where certain conditions are met and an appropriate declaration in the required form is made.

In 1991, the Revenue approached AIB and indicated that more effective procedures for the collection and payment of DIRT were required in the area of non-resident accounts and AIB introduced these new procedures. AIB believes that it reached an agreement or arrangement with the Revenue at that time under which no liability would attach to the Bank in respect of DIRT between 1986 and 1991.

In 1998, the Committee of Public Accounts of the lower house of the Oireachtas (parliament) investigated media reports concerning a substantial number of 'bogus non-resident accounts' in AIB in 1991 and, as a result, the Comptroller and Auditor General ('the Comptroller') carried out an investigation into the operation of DIRT in financial institutions between 1986 and 1998. Following these media reports, AIB completed an exercise ('the Look Back Report') for the purpose of considering the DIRT potentially at issue between 1986 and 1991 in relation to certain deposit accounts.

The Comptroller's Report on his investigation was submitted to the Dail on 19 July 1999. The Report set out the facts as found by the Comptroller and outlined the events occurring between AIB and the Revenue in 1991.

The Committee of Public Accounts established a sub-committee ('Sub-Committee') which decided to hear further evidence on what, in its opinion, were conflicts of fact arising directly or indirectly from the Comptroller's Report or from earlier proceedings of the Committee of Public Accounts.