By Sonya McLean
A tax inspector said he carried out three assessments on Independent TD Michael Lowry and his company after it was discovered that a payment was accounted for in 2006 when it had actually been received four years earlier.
It is the State's case that Mr Lowry's company received Stg £248,624 (€372,000) in commission from Norpe OY, a refrigeration company based in Finland, in August 2002.
It is alleged that Mr Lowry arranged for this payment to be made to a third party, residing in the Isle of Man, and therefore it didn't appear in the company accounts for that year, nor did he declare it as income.
It is further alleged that the accounts were then falsified in 2007 to reflect that the payment was received in 2006.
Mr Lowry (64) of Glenreigh, Holycross, Co. Tipperary, has pleaded not guilty at Dublin Circuit Criminal Court to four charges of filing incorrect tax returns on dates between August 2002 and August 2007 in relation to a sum of Stg £248,624 received by his company, Garuda Ltd and one charge in relation to failing to keep a proper set of accounts on dates between 28 August, 2002 and August 3, 2007.
He further pleaded not guilty on behalf of Garuda Ltd to three similar charges in relation to the company's tax affairs and one charge of failing to keep a proper set of accounts on the same dates.
The jury has seen a letter signed by Mr Lowry, dated January 2007 and addressed to Neale O'Hanlon, a partner in the accounting firm employed by Garuda. It was received while Mr O'Hanlon's practice, BBT, were auditing Garuda's accounts.
The letter stated that while the payment from Norpe was paid directly to Mr Lowry, it was properly due to the company and therefore should be reflected in the 2006 accounts. It instructed Mr O'Hanlon to set the payment against the director's loan.
Henry Oliver, inspector of taxes in the investigation unit of Revenue told Remy Farrell SC, prosecuting, that he carried out a corporation tax computation in August 2013 because he believed Garuda had a tax liability as a consequence of the 2002 Norpe payment being incorrectly accounted for in 2006.
Mr Oliver said Garuda owed corporation tax on the sum of €372,000 at 16% which was the tax rate at the time. He said with penalties and fine, he assessed the company as owing €101,254.
He said he allowed for the fact that Garuda paid corporation tax on the €372,000 figure in 2006 when they actually accounted for it, but noted that corporation tax at that time was 12.5%, 3.5% less than it had been four years earlier.
Mr Oliver said he subtracted the corporation tax which was paid in 2006 against the payment which he assessed should have been paid in 2002, and found that Garuda had an additional tax liability of €6,111. He said with an interest and penalities the resulting figure was just over €11,000.
The witness said he also determined that Mr Lowry should have paid income tax in 2002 on the €372,000 received from Norpe. He concluded that what the TD owed was just over €516,000 which included fines and penalties.
Mr Oliver said in addition, Garuda should have paid PAYE and PRSI on the €372,000 and concluded that it too then owed €510,000, again including fines and penalties.
Judge Martin Nolan asked the witness: “Even if Garuda didn't know this money was paid directly to Mr Lowry they were obligated to pay tax on it?”
Mr Oliver said “yes” they were obliged to pay tax even if they were unaware of it.
He agreed that BBT responded to his letter and refused to accept that the €372,000 constituted income. Instead it was accounted for in the director's loan for the company and it was taxed at 20%.
Mr Oliver accepted a suggestion from Michael O'Higgins SC, defending Mr,Lowry that the figure he had computed as being tax owed was a “multiple” of the commission received from Norpe.
Mr Oliver told the jury he had decided that the €372,000 was an emolument, a wage or salary, received by Mr Lowry, which meant it was subject to income tax.
He agreed that the €1.1 million he had determined both his client and Garuda owed was successfully appealed at an Appeals Commission and “set at zero”.
The witness refused to accept a suggestion from counsel “that the question of whether it is an emolument or not is a complicated.”
“I disagree,” Mr Oliver replied.
“Would there be room for two views?” Mr O'Higgins asked.
“No,” Mr Oliver answered.
He agreed that when the case went to the Appeals Commission, both Revenue and Mr Lowry were represented by senior and junior counsel and two appeal commissioners adjudicated the hearing.
Mr Oliver accepted that it was quite unusual for two appeal commissioners to sit together as they did in this case, acknowledging that in his career he had only seen one incidence of this.
However, he still refused to accept that it was, as Mr O'Higgins suggested, “a complicated matter”.
“They determined it was not an emolument and set it at zero,” counsel said.
“They determined there was no evidence to support an emolument,” Mr Oliver replied.
The trial continues before Judge Nolan and a jury of eight men and three women after one juror was excused due to illness.