The Government has strongly defended tax changes made in 2001 that helped thousands of Eircom workers to double their stake in the company without suffering major tax bills.
Eircom's Employee Share Ownership Trust (ESOT) would not have backed the Valentia bid orchestrated by businessman Sir Anthony O'Reilly without the change, the Minister for Finance, Mr McCreevy, acknowledged.
However, he insisted that the change had been of benefit to workers rather than Valentia.
Valentia, backed by billionaire Mr George Soros, won control of Eircom after a long and bitter battle with eIsland, the consortium put together by former ESAT chief Mr Denis O'Brien.
"If this change had not been made, it would have favoured the Denis O'Brien consortium and the deputy can imagine the hullabaloo that would have caused," Mr McCreevy said yesterday in answer to a Dáil question from Green Party TD Mr Dan Boyle.
Mr McCreevy said that every change made since employee share-ownership trusts were first allowed in 1997 by the then minister for finance, Mr Ruairí Quinn, had been designed only to "preserve the tax benefits" for workers.
Mr McCreevy said Eircom workers' tax advisers had warned in June 2001 that existing tax law could threaten the deal.
Denying any underhand action, the Minister said he had indicated shortly afterwards that he accepted the need for change and had made that change in the Finance Bill the following year.
"This provision was contained in the Finance Bill 2002 as published and was covered in the explanatory memorandum. It was debated on committee stage and there was no secret about it.
"After the decision was made in June 2001, the Department of Finance received a request under the Freedom of Information Act to which it decided to accede in September 2001.
"In September 2001, a third party objected to the release of information and there was an appeal to the information commissioner, on which the commissioner made a decision to release in September 2003.
"There was nothing underhand about this matter. The changes under section 13 of the Finance Act 2002 requested by representatives of the workers were to preserve the tax benefits of the existing ESOT.
"These changes were non-discriminatory and affected other takeovers," said the Minister.
Had the change not been made, the workers' trust would have had to distribute cash among its members since it would not have been allowed to buy preference shares.
Valentia wanted to ensure that the trust did not become too powerful. It was possible to limit ESOT's power by selling it preference shares, which do not carry full voting rights, rather than regular shares.
Because of preference shares, ESOT currently has just over 25 per cent of the voting rights even though it owns nearly 30 per cent of the shares.
"The legislative changes simply provided the membership of the Eircom ESOT with a level playing field to choose to support whichever bid they wished to support," the Minister said.
Both Valentia and eIsland had the same chance to strike a deal with the Eircom workers. "I understand the ESOT was more inclined to vote for the Valentia consortium," he added.
