Banks and large corporations will be able to use massive losses they accumulated during the economic crash to write off billions of euro they owe in corporation tax over the coming years.
Under tax legislation, corporations can write off losses against tax liabilities for an indefinite period of time.
Revenue Commissioners internal documents show there is concern that the scale of losses – a practice known as "loss buying" – could significantly affect future tax revenue.
As a result, the Revenue’s large cases division is monitoring any evidence of “aggressive tax planning” among the largest corporate groups and financial services companies.
Just 10 companies are responsible for about €96 billion of unused losses that can be used to reduce their tax bills. They are not named in the documents but include a treasury company and several banks.
Income from corporation tax has fallen significantly over recent years. It peaked at €6.4 billion in 2007 and has fallen every year to 2011, to a low of €3.5 billion. It recovered in 2012 to €4.2 billion.
The State is heavily dependent on relatively few companies for this income. For example, the top 100 corporation tax payers in 2011 contributed 80 per cent of the tax take.
Latest available figures show that by the end of 2010 there was an estimated €119 billion in unused losses that could be set against future profits. This was an increase of €70 billion on 2009.
The increase was due to companies significantly underreporting losses for earlier years, as they were not obliged to include total cumulative losses in their corporation tax returns. They were allowed to report just the amount of losses for which relief was being claimed during the accounting period. The Revenue has since amended its corporation tax return forms to insist that companies provide information on their total losses.
Documents show officials are uncertain about how much the exchequer may lose over the coming years as a result of companies using their losses to reduce their tax bills.
“It is difficult to estimate the extent to which losses will impact on future corporation tax receipts as the use of losses depends critically on the capacity of companies to generate profits to absorb their losses,” one document states.
“This will vary from sector to sector and some companies will not be able to fully utilise their losses because of insufficient profits or because they go out of businesses.”