The Revenue Commissioners is narrowing its focus on Ireland’s largely opaque “tax neutral” world of special-purpose vehicles (SPVs) used by banks, hedge funds and private equity firms to house €750 billion of assets.

“Interventions are currently underway in respect of a number of such companies,” a spokeswoman for the Revenue Commissioners said on Sunday. “Selection for audit or investigations, and any consequence publication, is dependent on the outcome of any intervention.”

If any abuse of Section 110 of the Taxes Consolidation Act 1997, which has allowed the setting up of tax-efficient structures used by financial institutions to house risky assets such as distress debt, greenhouse gas credits and catastrophe bonds, will be brought to the attention of the Department of Finance, she said.

The department would then decide if legislative changes may be required, she said. The Minister for Finance Michael Noonan last week told Stephen Donnelly, TD and joint leader of the Social Democrats, that the Revenue Commissioners was examining the use of SPVs for property investments.

“Should these investigations uncover tax-avoidance schemes or abuse, which erodes the tax base and causes reputational issues for the State, then appropriate action will be taken and any necessary legislative changes that may be required will be put forward for my consideration,” Mr Noonan said.

Dublin hotbed

Dublin has become a hotbed for largely unregulated SPVs and similar structures called financial vehicle corporations (FVCs) set up under the 1997 tax laws. The industry is one of the most secretive and least regulated parts of Ireland's €2.3 trillion shadow banking sector, a term used for banking activities that take place outside banks, which is growing rapidly globally.

While these vehicles are structured so that the companies make little taxable income, and many don't have staff, they have become a boon for lawyers, auditors, corporate services providers and the Irish Stock Exchange, where many of these vehicles list debt.

The vehicles are typically structured under the ownership of a charitable trust to keep them off the balance sheets of banks and private equity firms to which they are linked. However, the financial firms are ultimately liable for taxes they make from their activities, often outside Ireland, according to sources familiar with the vehicles.

The Sunday Independent has reported that some 40 so-called Section 110 companies are being investigated by the Revenue Commissioners to ensure they are acting inside tax law.

The Irish Times reported earlier this month that a senior Revenue Commissioner official, Áine Hollingsworth, had raised concerns about the use of registered charities to facilitate the tax avoidance and potentially risky shadow banking activities carried out through SPVs.

Charitable trusts

Although the use of charitable trusts is considered standard practice within the financial sector and entirely legal, Ms Hollingsworth emailed Ronan Hession, head of business tax at the Department of Finance, in April to question whether the charity regulator should "allow that sort of set-up".

The material was released to Sinn Féin's finance spokesman Pearse Doherty under the Freedom of Information Act.

The Revenue Commissioners is just the latest body to turn the heat up on SPVs. While the sector largely falls outside regulation, the Central Bank last week ordered SPVs to start filing data on their assets and liabilities as global authorities, led by the Financial Stability Board in Switzerland, hunt for financial risks following the global economic crisis.

Gareth Murphy, director of markets supervision at the Central Bank, has previously said that while shadow banking can perform many useful functions and support economic activity, "We know that there are also a number of not-so-good reasons for shadow banking, such as regulatory arbitrage and spurious financial innovation."

The Central Bank’s initial work found 820 SPVs covering €322 billion of assets.

FVCs, which have about €430 billion of assets, have been obliged by the European Central Bank to file quarterly data since 2009.