The Revenue Commissioners do not have direct access to the bank accounts of individuals despite significant extensions of Revenue's powers in recent years.

The tax authorities cannot trawl through bank accounts looking for undeclared or under-declared income. To examine an individual's bank account the Revenue must apply to the High Court seeking access to the account.

In order to protect the privacy of citizens this permission will only be granted where the Revenue is able to satisfy the court on a number of issues:

They must give the court the name on the bank account and the name of the branch where the account is held. In the case of the infamous Ansbacher deposits, the Revenue Commissioners were unable to act on the revelation that the accounts existed because they did not have the names of the account holders.

They must satisfy the court that they have reason to believe that the account contains capital which has not been declared, or not declared in full.

Where the Revenue has the name of a suspected tax evader and the name of his/her bank branch, they can check their tax return to see if that account has been declared. If it has not, the taxpayer's affairs are liable to be investigated.

There was an expectation that funds hidden from the tax authorities would come into the open as a result of the attractive 1993 "incentive" amnesty. That amnesty, aimed at undeclared income and capital gains, allowed people to pay 15 per cent of the amount involved in full settlement of their liabilities. It took in £198 million.

Defaulting taxpayers were legally obliged to avail of the amnesty. Severe penalties were put in place to deal with people who were subsequently found to have undeclared funds.

The bottom line is that every Irish resident is taxable in the Republic on all income, wherever that is earned or held. Residents are obliged to declare all income, but the timing of the declaration will depend on how the funds are held.

For example, where a lump sum is invested in an insurance fund that gives no return for a fixed period of, say, five years, the taxpayer will not have to disclose the income until it is received in the fifth or sixth year. But if the fund pays an annual dividend, then the taxpayer must declare the dividend as income every year. Taxpayers covered by the self-assessment system must make an income tax return every year. Most PAYE taxpayers have their full tax liability deducted at source. But PAYE taxpayers with income other than that taxed at source, such as rental income or dividends on shares, tend to receive a return form from the Revenue for completion.

Deposit account holders are liable for tax on interest earned on their capital. For deposits held in Irish financial institutions, that tax is deducted at source under the deposit interest retention tax (DIRT) rules.

It is not illegal to hold accounts offshore. Irish residents are entitled to bank in London, the Isle of Man or wherever they choose. But any Irish resident with an offshore account is obliged to disclose it to the Revenue and to declare as income any interest earned in the capital.

There are legitimate reasons to hold a bank account abroad and in a foreign currency, such as trading, buying raw materials or products. But some finance sector sources admit that many offshore accounts are likely to have been opened so that the holders can evade their Irish tax liabilities.