It is understood the move aims to bring the businessman into the net for Irish capital gains tax arising from the substantial profits he made from selling a business in Ireland. It is part of a wider crackdown on tax avoidance by wealthy individuals who go into temporary exile to escape CGT.

The tax treaty with Italy was negotiated before CGT was introduced in 1975. Up to now, the Revenue has given the Italians full taxing rights over gains made by Irish people living in the country, even gains arising from Irish assets.

Concern that this arrangement allowed some people slip through the net has prompted the Revenue rethink. The result could expose Irish people living in Italy to double taxation, with both the Italian and Irish taxman seeking a cut from the same gain.

The Irish tax authorities confirmed the U-turn in a recent note to tax practitioners. "Having examined the matter again, Revenue believes there may be a doubt about the correctness of its previous position, " the note states. "Accordingly, legal advice is currently being sought in relation to the matter. Further clarification will be issued when the advice has been received and fully considered."

Meanwhile, finance minister Brian Cowen has told the Dail that a loophole allowing wealthy individuals escape CGT by moving to Portugal is likely to be closed off next January, a year behind schedule. The two governments have already signed a protocol bringing the changes into effect. But while the protocol has been passed by the Dail, the Portuguese parliament has been dragging its heels.

Cowen told the Dail at end of last month: "I am informed that the Portuguese government has confirmed that the procedure to ratify the protocol between Ireland and Portugal is under way and, on the assumption that the ratification process is completed this year, the protocol would take effect from 1 January 2007."

The CGT crackdown was launched by former finance minister Charlie McCreevy in 2002 when he announced a number of anti-avoidance measures during the Budget.