The Revenue offensive against DIRT tax evasion could see the withdrawal of some of the biggest banks from the International Financial Services Centre in Dublin, the Government has been warned.
The industry group which represents the financial services sector has sought the intervention of the Taoiseach, Mr Ahern, to ease the pressure on IFSC-based institutions, cautioning that the Revenue DIRT regime is threatening the viability of the flagship centre and employment provided by it.
In letters sent to the Taoiseach, the Minister for Finance and the Revenue Commissioners last week, the Financial Services Industry Association said the Revenue's tough stance on DIRT in the wake of the Dail Public Account's Committee Inquiry into the abuse of non-resident accounts, is damaging the reputation of the IFSC.
The chairman of the association, Mr Ron Bolger, further cautioned that the DIRT regime would have implications for Ireland's relations with the many large multinationals which have held legitimate funds in non-resident accounts.
"There will be enormous damage to the reputation of the IFSC as an international banking location because the regulatory climate will be seen as hostile. This will be exploited by our competitors and will be taken account of by international financial institutions when deciding whether to locate activities or business in Ireland; some IFSC institutions may be closed down by their parents," Mr Bolger said.
According to the 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 banks' auditors are demanding that where the precise tax position is unclear, they will have to note a potential tax liability in their accounts, causing knock-on problems for the international parents of the institutions involved.
The association says the Revenue should make it clear that no tax will be demanded where there is no real liability.
A spokesman for the Revenue Commissioners said yesterday it would meet IFSC companies to discuss concerns shortly.
The IFSC is a flagship financial project which has attracted 400 companies to Dublin and employs about 7,000.
Companies based at the centre qualify for a low tax regime on international activities. The IFSC is a major contributor to the Government's annual tax revenues, yielding £430 million in corporation tax last year.
The Revenue is undertaking a "look-back" audit which is examining non-resident accounts held at 37 financial institutions dating back to the introduction of DIRT in 1986. The audit is on foot of the PAC inquiry and is mainly focused on Irish banks and building societies which provided non-resident accounts for its customers over that period.
It also includes eight IFSC companies which principally provided non-resident deposits for international companies.
The eight - ABN AMRO; Bank of America; Banque Nationale de Paris; Citibank; Chase Manhattan Bank (Ireland); Pfizer International Bank Europe; Scotiabank (Ireland) and Westdeutsche Landesbank (Ireland) - are among the biggest employers at the centre.
Sources say the Revenue approach to this audit is causing friction with some of these companies, who feel they have no case to answer. However, a wider problem is the strict interpretation of the DIRT legislation by the Revenue Commissioners in its dealings with companies at the centre.
These companies involved, which include big international players, are regulated by the Irish authorities and may now be forced to make a provision for a potential tax liability in relation to DIRT on accounts which should be technically exempt.
Mr Bolger has called on the Taoiseach to urgently resolve the problem. "This will cause significant ill-will in the parent company as it will be seen as punctiliousness on the part of the Irish authorities," he said.