The controversial 1990s Seaside Resort Scheme was used by groups of top-rate taxpayers to create tax shelters, an inquiry into the scheme by the Revenue Commissioners discovered.
The existence of partnerships which made use of the scheme for tax reasons, was outlined to the Department of Finance in 1999 in a letter that urged the withdrawal of the intended extension of the scheme. A copy of the letter, from Ms Muriel Hinch, in the Revenue, was released following a Freedom of Information request.
The scheme was established in 1995 and was cancelled in December, 1999.
According to the letter, the Revenue had discovered that partnerships were renting numbers of properties from owners in different resorts around the coast, paying annual rents of in the region of €12,000 per property. The properties were then being rented on for more short-term lettings. "Operating companies" were involved in running the operations for the partners.
Because the rent paid by the partnerships qualified for double rent allowances, the members of the partnerships were able to use the scheme to "shelter" their income from other areas. Most were on a tax rate of 46 per cent at the time.
A partnership that rented a number of properties for €100,000, for example, and rented them out for €100,000, would have €100,000 in tax allowances to share out among its members. This would be because, for tax reasons, the rent paid would be doubled, to €200,000, and the partnership therefore would make a loss for taxable purposes of €100,000.
A spokesman for the Revenue said the partnerships were quite common at the time of the scheme.
Following receipt of the letter from Ms Hinch, a senior official in the Dept of Finance wrote a note which was seen by the Minister, Mr McCreevy, and a number of top officials.
Mr McCreevy highlighted the part of the note which covered the use of the scheme by parnerships seeking to create shelters for their income. The note suggested that the scheme could be terminated at the end of 1999.
The resorts scheme was introduced in 1995 with the aim of renewing and updating tourist amenities in certain established seaside resorts.
The scheme may have cost the State close to €400 million in capital allowances - tax allowances on the amounts spent on building properties - with further significant amounts being lost in double rent allowances.
A note to the Minister for Finance, Mr McCreevy, in January, 2000, summarised the findings of a report into the scheme. It noted that 80 per cent of all investment under the scheme had come from "high-income non-local individuals" and had been skewed towards self-catering accommodation.
It said the scheme may have assisted in the achievement of regional spread and the retention within the national economy of spend which might otherwise have occurred in overseas holiday destinations. "Most of the resorts are developing as a destination for domestic tourists rather than for overseas tourists".
It also said that "there is evidence to suggest that a significant number of the new self-catering units are not genuinely on the market, as required by the scheme (e.g. only 60 out of an estimated 890 units in Courtown and 60 out of Youghal were entered in the Bord Fáilte self-catering guides 1999)."
Another conclusion was that the "negative physical impacts of the scheme could be viewed as antipathetic to tourism policy objectives specifically in relation to the enhancement of the environment."
