Foreign investors are using Irish companies to hide money from their own tax authorities. Up to 40,000 non-resident firms are registered here, and some are suspected of criminal links.
The Government acknowledged last night that this use of Irish-registered companies was a serious problem and was damaging the reputation of the International Financial Services Centre in Dublin.
Industry sources say some of these companies, which are not obliged to pay tax to the Irish Revenue Commissioners because they are non-resident, are being used by investors, predominantly from Russia and eastern Europe, to shelter money from their own tax authorities.
More than £20 billion may have passed through these companies to date, although the figure substantially greater. Many of the companies have been set up for legitimate purposes, but recently several international police authorities are understood to have visited Ireland to investigate the operation of some.
A spokesman for the Department of the Taoiseach yesterday acknowledged that the Government could not regulate these companies because it could not identify the beneficial owners.
None of these funds are held here but they pass through the Irish-registered companies, giving the appearance of being regulated and monitored by the Irish authorities.
In some cases, they are set up to appear as if they operate as part of Dublin's IFSC. But by their non-resident status, they by-pass the stringent regulations applied to companies operating from the centre.
The Department spokesman said this was causing the Government concern as it had undermined the reputation of the IFSC internationally. "We recognise that it is creating a perception abroad that these companies are part of the IFSC, but in fact they have no connection."
The previous government attempted to tighten the regulations regarding non-resident companies in the 1995 Finance Act. This amendment was designed to ensure that all relevant information on these companies had to be given to the Revenue.
But as the 40,000 or more nonresident companies hold no Irish assets, and conduct no trading business here, they are not liable for tax and have never come to the Revenue's attention. Their own tax authorities are either unaware of their existence or believe
they are regulated in Ireland. A Revenue spokeswoman has confirmed that as these companies attract no tax liabilities they do not report to the Revenue.
Last summer the Department of the Taoiseach set up a working group to examine the administrative and legislative changes necessary to remove these companies. It is made up of representatives of the Department of Finance, the Central Bank, the Department of Enterprise, Trade and Employment, IDA Ireland and the financial services industry. Its examination is continuing.
See also Business This Week 1