A leading German Bank has warned it is reviewing its Irish operations ahead of a key meeting today between the Revenue Commissioners and institutions from the International Financial Services Centre (IFSC).
Depfa-Bank, which employs more than 50 people at the centre, became the first IFSC-based institution yesterday publicly to air its difficulties with the stance being taken by the Revenue Commissioners in relation to the collection of Deposit Interest Retention Tax (DIRT).
Mr Dermot Cahillane, chief executive of the bank's IFSC operation, said it was concerned that the Government did not fully understand the seriousness of the issue for many companies at the centre. "This is a local tax issue which is now damaging our parent internationally. It has reached the point where our chairman is questioning whether it might be easier to locate this business somewhere like Luxembourg," Mr Cahillane said yesterday.
Following the Dail Committee of Public Accounts inquiry into DIRT evasion last year, the Revenue and the main Irish auditing firms are adhering rigidly to how the DIRT legislation should be applied.
As a result, according to the Financial Services Industry Association, the Revenue is insisting on DIRT payments from IFSC institutions in cases where full tax documentation is not complete, even though there is no underlying tax liability and the institutions involved would be able to reclaim the money at a later date.
The association will raise the issue today with the chairman of the Revenue Commissioners, Mr Dermot Quigley. It will be urging Mr Quigley to revert to the more pragmatic approach which it said was previously adopted by Revenue.
In most cases, the problems are arising where a bank does not have the properly completed documentation in relation to funds owned by its international client base. The most damaging aspect for companies such as DepfaBank is that Irish auditors are refusing to sign off annual accounts unless the companies involved make a provision for an unquantified exposure to DIRT.
"International pension funds are not impressed when they see a note to Depfa-Bank's accounts which indicates a potentially huge tax liability in Ireland. The effect of such a note for a company listed on Nasdaq can be colossal," he warned. "This is a major problem for all IFSC companies which are listed on the US markets and is very serious for the centre".
Many of the IFSC companies and the major Irish accountancy firms have individually lobbied the Government on the issue recently. Some sources are optimistic that the Revenue will adopt a more relaxed approach when compiling any tax demands from such companies although this is likely to include fines where documentation is incomplete.
One IFSC company said very minor discrepancies were being disputed. The Government has backed the tough line being taken by the Revenue Commissioners and described as empty threats warnings that some companies may be closed by their international parent.
