Thousands of offshore account holders may slip through the Revenue net because the tax authorities have no power over customers of foreign-owned banks, writes Dominic Coyle

At least four of the 10 Irish financial institutions that met the Revenue chairman Mr Frank Daly late last year and agreed to co-operate in a trawl of offshore accounts are subsidiaries of foreign banking groups. As a result, they will not come under new Revenue powers granted in the Finance Act 2004, which facilitate the clampdown on offshore accounts.

That could frustrate efforts to collect up to €1 billion in outstanding tax and penalties.

The Revenue has launched a high-profile clampdown on Irish residents who have held money outside the State. More than 15,000 people came forward ahead of a March 29th deadline to voluntarily disclose liabilities.

The Revenue is chasing both money on which tax was not originally paid and interest which was not declared for tax by Irish residents.

As part of the campaign, Mr Daly met executives of Irish banks, which had associated or subsidiary businesses offshore. These include AIB, Bank of Ireland, Ulster Bank, National Irish Bank, Permanent TSB, Anglo Irish Bank, First Active, ACCBank and EBS Building Society.

They agreed to co-operate with the Revenue, and subsequently got their foreign subsidiary and associated operations to send letters to all customers who had addresses in the Republic.

The Revenue also lobbied for and received stronger powers in the Finance Act to take banks to court and compel them to get their foreign associates and subsidiaries to release details of Irish account holders. Tracking down details of funds held overseas by Irish taxpayers has been an arduous and time-consuming task to date.

However, it is now unclear how the Revenue will pursue customers at four of these banks - Ulster, National Irish, First Active and ACC, which are owned by groups in Britain, Australia and the Netherlands.

They, along with other foreign-owned banks such as IIB and US banks with operations here, do not fall under the new provisions. Foreign banks are not answerable to the Irish courts, although their operations must disclose information held locally.

The loophole will cover thousands of customers of Ulster Bank north of the Border and also of National Irish Bank's associate, Northern Bank.

But it will not protect people who have moved money abroad from a bank in the Republic or repatriated funds previously held abroad as these will show up in the records of the Irish bank clearing system.

Accountancy industry sources said Irish taxpayers would be foolish to try to outfox the Revenue.

They said the Revenue should still be able to trace money held abroad through special clauses in double taxation agreements or arrangements with foreign tax authorities.

"It would be the height of stupidity for any Irish taxpayer to think they will get away with it," said one senior industry source.