The Government has defended the tough stance being taken by the Revenue Commissioners when applying the tax laws to companies at the International Financial Services Centre (IFSC).
The Tanaiste and Minister for Enterprise, Trade and Employment, Ms Harney, dismissed as an empty threat yesterday a warning by the Financial Services Industry Association that the Revenue's DIRT offensive could close down companies at the centre. Ms Harney rejected suggestions that overseas banks or financial institutions operating in the State would be driven out due to the enforcement of tax laws by the Revenue Commissioners. She said she did not believe the Revenue Commissioners were enforcing the law in a way which would discourage investment.
However, sources within the financial services sector insisted last night that the issue was a major cause of concern for IFSC companies. The Government has been aware of the problem for some time as several of the leading IFSC companies have individually made representations to the Minister for Finance, Mr McCreevy, about the Revenue's treatment of DIRT.
A number of accountancy firms which act as auditors to IFSC institutions have also petitioned the Government to review the Revenue's stance.
Earlier this month, the Financial Services Industry Association sought the intervention of the Taoiseach, Mr Ahern, to ease the pressure on IFSC-based companies as a result of the Revenue DIRT regime.
The industry body claims the Revenue has only recently begun to insist on DIRT payments from IFSC institutions 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.
This is currently causing problems for IFSC companies as they compile their annual accounts. Because of the strict interpretation of the DIRT legislation being taken by the Revenue, auditors are insisting 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 lobby group claims that up until recently the Revenue has exercised its discretionary powers where technical breaches of the DIRT legislation have arisen.
In one instance, it says the Revenue gave a written undertaking that a non-resident deposit which did not have complete documentation did not have a DIRT liability. However, this position was reversed some weeks later when the Revenue audited the company's accounts.
"The problem relates to purely documentation issues on legitimate IFSC business and the Revenue already has discretion in how it deals with these problems. This stance has only changed in recent weeks. As no DIRT assessments have been raised yet by the Revenue, the concern is that it will take an extreme position when applying DIRT liabilities," according to Mr Denihan, director of the Financial Services Industry Association.
Meanwhile, the Fine Gael spokesman on finance, Mr Michael Noonan, has called on Mr McCreevy to intervene to ensure the IFSC is not damaged by the ongoing controversy.
"It is part of his duty as Minister for Finance to ensure that nothing occurs that will damage the international financial services industry. It's not good enough for the Minister for Finance to now pass the buck to the Revenue Commissioners."
Speaking in the Dail yesterday, Mr McCreevy said he was satisfied that the Office of the Revenue Commissioners was pursuing the proper course of action in relation to the collection of DIRT.
The IFSC is a flagship financial project which has attracted 400 companies to Dublin. Last year, it is estimated to have yielded £430 million (€546 million) to the Exchequer.
Mr Denihan said the cross-party political support for the centre and the pragmatic approach of the Irish authorities had underpinned the success of the IFSC. "The industry now wants to see the Revenue taking a sensible approach once more."
