Ireland has closer links with the Cayman Islands today than was ever the case during the 1970s and 1980s.

Twenty years ago the remoteness of the Cayman Islands and its no questions asked policy towards would-be depositors made it an attractive location for Irish businessmen hiding hot money from the Revenue.

These days globalisation, the Republic's policy of attracting foreign investment through unusually low corporation tax rates, and the tax needs of US multinationals, have created a less covert link between the two jurisdictions.

The Caribbean tax haven is home to Intel Ireland, the largest multinational investor in the Irish economy. The Irish Intel operation, which has invested $3 billion here in the past 10 years and has plans to invest another $2 billion, is a branch operation of a Cayman Islands company called Intel Ireland.

The company is registered here as an external company and as such does not have to file accounts or annual returns with the Companies Registration Office. It is just one of a number of major US multinational companies that use the Cayman Islands as part of global structures designed to minimise their tax bills.

The islands, which 20 years ago were happy to see people arriving with suitcases full of money, are now home to multinational banks and accountancy firms that provide services to locally registered elements of global multinationals. The big money now for such offshore centres is in providing financial services to global capitalism.

The islands are home to Atlantic Industries, which produces Coca-Cola essence in Drogheda for export worldwide. The value put on the essence - more than £1 billion (#1.27 billion) each year - is such that it forms a significant percentage of the Republic's annual export total.

Other major multinationals with operations here have global tax structures involving Dutch holding companies. They include Microsoft, Dell and Pfizer.

Holland has special no-tax provisions for foreign dividends earned by Dutch-registered holding companies. For almost 30 years it has formed part of the global structures put in place by US multinationals.

As well as foreign dividends, Holland also exempts profits earned on disposals of shares from capital gains tax (CGT). This makes Holland an attractive option for US companies that want to re-invest profits without repatriating them to the US first, where they would become subject to the 35 per cent tax rate there.

For example, a US multinational with a major manufacturing operation here could run that operation via a Dutch holding company. The Irish profits would be taxed at 10 per cent, and then sent as dividends to Holland, where they would not be taxed. The money could be then used to invest in another location, either in Europe or elsewhere.

The fresh investment would not incur CGT if it were ever sold on.

The Cayman Islands was at one stage useful for multinationals that did not want to repatriate profits from locations such as the Republic, but did want to place the funds on deposit. Here the interest would be taxed, but by transferring the money to the Cayman Islands, interest could be earned tax-free. However, the US has now set low limits on the amount of interest that can be earned abroad in this way by US companies without that interest being taxed.

The Cayman Islands can still be used to "blend" or average out the tax rates which a company incurs in jurisdictions with varying tax rates. For example, a Cayman company with an Irish branch and a branch in a jurisdiction with a corporation tax rate of 40 per cent could add the profits earned and tax bills paid from the two operations to come up with an average tax rate significantly lower than 40 per cent. When working out the average the amount of profits made in each jurisdiction is a crucial factor.

An essential goal for a US multinational making profits abroad is to reduce its average foreign tax bill to less than the US corporation tax rate (35 per cent) . The Republic, because of its unusually low corporate tax rate (10 per cent), can be hugely useful in this regard. A company with a major operation in a jurisdiction where the corporation tax rate is more than 35 per cent could set up an operation here and blend the income and the tax bills from the two operations to achieve a figure below the US corporation tax rate.

When blending incomes and tax bills, the company will seek to locate as much profitable activity as possible in the low-tax jurisdiction. This is why multinationals based here might be tempted to boost the profitability of their Irish operation as much as possible, while reducing the profitability of its activities in a jurisdiction with a higher tax rate. In this way the profits are transferred to the jurisdiction with the lowest tax rate.

All earnings from abroad returned to the US by a US company are combined along with the company's foreign tax bills, and an average arrived at. The company then has to settle with the US Revenue if the average is lower than the US rate of 35 per cent.

If all foreign profits were repatriated by US companies, then the minimum overall rate that could be achieved for foreign earnings would be 35 per cent. However, all profits are not repatriated and this allows multinationals to reduce their tax bills below the US rate. Many give an effective tax rate for the year in their annual reports, this being the net tax rate when the benefit of not repatriating all profits is taken into account.

For instance, the Dell Computer Corporation annual report for the fiscal year to February 2nd, 2001, states: "The company's effective tax rate was 30 per cent for fiscal year 2001, compared to 32 per cent for fiscal year 2000 and 30 per cent for fiscal year 1999."

"The differences in the effective tax rates among fiscal years result from changes in the geographical distribution of taxable income and losses and certain non tax-deductible charges. The company's effective tax rate is lower than the US federal statutory rate of 35 per cent, principally because of the company's geographical distribution of taxable income."

In the year to February 2nd, Dell Computer Corporation made a profit of $6.4 billion. One per cent of that is $64 million. It is because savings of that size can be made from effective tax planning that multinationals have large taxation departments in their US corporate headquarters, where experts monitor changes in US as well as worldwide tax law.

The Republic features largely on their tax maps of the globe, as does Holland, the Cayman Islands, and other locations that compete, through special tax measures, for the business the multinationals have to offer.

The size of the savings that can be made is also the reason why the global structures of multinationals so often reflect their tax needs more than the nature of what they actually do.