Department of Finance officials warned that Aer Lingus should not use any "offensive" tax avoidance scheme when selling its charter subsidiary Futura.

The State airline is believed to have paid about €1 million in tax to the Spanish authorities after it realised €27 million from the sale of an 80 per cent stake in Futura to a management group.

The sale process was described as protracted, difficult and complex.

Records released under the Freedom of Information Act show that a special holding company was set up to facilitate the management takeover, which was backed by the Spanish private equity group Corpfin Capital.

This aspect of the transaction also optimised tax efficiency for Aer Lingus.

But before the sale was approved by the Government, the Department of Finance raised a number of concerns about the transaction with the Department of Transport.

Records show the Department of Finance expressed "surprise" that the holding company was to be set up initially as an Aer Lingus subsidiary.

An official in the Department, Mr Lorcan Fullam, also highlighted potential "conflict of interest issues".

Referring to taxation, he said State bodies should be "exemplary" in their compliance with the law and, while availing of all legitimate arrangements, should not engage in "offensive" avoidance arrangement.

"This of course applies equally to Aer Lingus operations in Spain and Ireland."

After asking the Department of Transport whether it and the Aer Lingus board were happy that such provisions were being adhered to in the sale, Mr Fullam added: "In more general terms, it is important that you be satisfied that the sale proposed by Aer Lingus not cause any difficulties of an international nature - for example, it is important that the transaction proposed in Spain would not merit opprobrium from the Spanish government."

It is unclear what exactly Mr Fullam was referring to in this note, but a list files released by the Department of Transport does not contain any reference to correspondence from the Spanish government.

The transaction was later cleared by the Irish and Spanish competition authorities.

Aer Lingus retained 20 per cent of Futura as a financial investment, but advised the Government that it would sell that stake "over the next few years".

While the company wanted to sell its entire stake in Futura, it received no offer for 100 per cent.

The airline said the use of holding company structure was not uncommon in such transactions in Spain and ensured that the transaction was in compliance with financial assistance regulations there.

The holding company was set up as an Aer Lingus subsidiary - for five days - and it was used for the transfer of shares.

It is thought that this aspect of the arrangement was developed only late in the process.

Referring to a meeting on November 6th, three weeks before the sale concluded, Mr Fullam wrote: "We understand from yesterday's meeting that part of the proposal involves the establishment of a subsidiary, even if only on a transitory basis.

"We were somewhat surprised to learn of this in that way."

Through its treasurer, Mr Brian Wheatley, Aer Lingus said no conflict of interest issues arose because none of the board members at Futura had an interest in the management group's offer.

"I confirm that a proper process in accordance with the Code of Practice for the Governance of State Bodies was conducted," wrote Mr Wheatley.

"In considering this offer the board determined that the offer represented fair value and was in the best strategic interests of Aer Lingus."

Futura was one of three subsidiaries sold last year by Aer Lingus.

The other two were: the bookings business, Timas Galileo (Ireland); and the ticket reconciliation business Aviation Services (Ireland).

Timas was sold in September to Cendant Corporation/Galileo International. Separate records indicate that this group was the only one to enter serious discussions with Aer Lingus after a 12-month trawl.