A REVENUE Commissioners crackdown on offshore trusts is under way amid evidence Irish companies have been using them to pay millions of euro in tax-free bonuses to staff.
Several trusts, operated out of foreign tax havens, are currently under active investigation, officials said.
Such is the concern about the sums of money at stake, the Revenue got the Department of Finance to change the law earlier this year so that tax would have to be paid on the bonuses.
Confidential briefing documents prepared for the department reveal how in just three of the cases investigated in detail, Revenue investigators found sums totalling €11.4m had been moved to offshore trusts by companies.
Revenue said the trusts were used to disburse cash to employees in the form of "bullet loans" -- loans which are repayable in one sum at a date 30 or 40 years into the future.
However, the intention is that the loans are never repaid, effectively giving the employee a tax-free bonus as the loan is not considered income.
Operating the trusts in this way had been entirely legal up until last March, when the law was changed at the behest of the Revenue.
Now income tax and the universal social charge (USC) must be paid on any such so-called loans issued after February 13 this year.
Loans issued before this date are also now subject to income tax, similar to benefit in kind charges on preferential loans.
To balance things out the law also states that should the loan be paid back, the employee can claim tax relief.
Revenue investigators are now focusing their efforts on catching company employees who have not complied with the new legislation.
In a statement it said it was examining a number of cases involving loans advanced before February this year. The identities of the firms involved was not disclosed.
Separately, confidential briefing documents seen by the Irish Independent warned that unless action was taken against such schemes "the loss to the exchequer could be considerable".
They cited three cases uncovered by investigators in which sums of €5m, €4.4m and €2m were moved to offshore trusts.
In each case, the key features of the scheme were that an employer would set up an 'employee benefit trust', with the trustees being resident in jurisdictions such as Jersey or the Isle of Man.
The employer moved a large sum of money into the trust, usually in a volatile currency whose value was likely to depreciate in future.
While in theory the trustees have discretion to use the funds as they see fit, the employer would then inform the trustees via a non-binding 'letter of wishes' that it wished the trust to grant loans to named employees.
The trustees would then make the loans to the employees, who converted them back into euro.
The Revenue said that usually the paperwork for the loans would state that the full amount is repayable at a specified date far into the future and that no periodic payments were required.
"It appears . . . that it is intended that the loans will never be repaid or that, if they are, the value of the loans will have decreased considerably due to the volatility downwards of the currency in which the loan was initially advanced, leaving the employee with a non-taxable gain on the loan," the official said.
"The reality of the arrangements is that the employee enjoys immediate access to the benefit of the sums placed in trust by their employer but there is no tax liability as, based on taxation principals that a loan is not income, it is possible that a tax charge will not arise."
The trusts are one of 413 tax avoidance transactions the Revenue has blown the whistle on in recent years.
"These 413 cases are at various stages. In general, these cases take time to resolve as they invariably involve litigation and appeals to the appeals commissioners and/or the courts," a Revenue spokeswoman said. A further 53 cases involving suspected tax avoidance schemes of various descriptions are currently being probed.