The Minister for Finance, Mr McCreevy, was tipped off personally - via an apparently anonymous letter - about a scheme to get around measures brought in to block the abuse of tax breaks on AIB's building in the IFSC.
Documents released by the Department of Finance under the Freedom of Information Act indicate that moves by the Department to close off a loophole followed the receipt of a letter.
The letter in question was not released by the Department, which said it had been sent to the Minister in confidence. But a handwritten note by a Department official on a fax cover sheet refers to it. It reads: "Received in Minister's office in attached envelope c. 10.45 on 13/3. Sent to me in internal post and passed on by me at c. 16.30 & copy sent by me to Revenue at 16.50 p.m."
Five days later, the Revenue Commissioners wrote to the Minister seeking his agreement for the publication of a statement saying that the tax legislation would be changed to close the loophole. A press release to that effect was published the next day.
The letter to Mr McCreevy followed moves last January by the Department to prevent private investors taking advantage of the generous tax breaks granted to AIB when it established itself in the nascent IFSC in the 1990s. A group of private individuals planned to buy the company's IFSC building and use the €55 million in capital allowances attached to it to reduce their personal tax bills.
The fall in corporation tax over the last decade from 40 per cent to 12.5 per cent made the deal attractive to AIB according to the documents because it significantly reduced the real cost to the bank of repaying any of the capital allowances that might have been drawn down.
The documents show that, after becoming aware of the scheme via an article in The Irish Times, the Government brought in changes in the 2003 Finance Bill to prevent private investors offsetting their personal tax bills against the capital allowances.
According to the documents released by the Department, there was concern that "similar schemes are likely to be devised for other IFSC or urban renewal buildings or indeed all such buildings in tax designated areas".
The investors appear to have subsequently tried to get around these changes by buying the building through a company rather than directly. A complicated structure involving loans would then have been put in place with the net effect of allowing the investors avail of the capital allowances. However, details of this scheme appear to have been leaked to the Minister resulting in the announcement of March 18th. The subsequent changes - which will be enacted in the 2004 Finance Bill - will restrict the allowances to the rental income from the building.
