Ireland's property developers have been advised by their auditors and banks to seek potentially hundreds of millions of euros in refunds on their tax bills from the Revenue Commissioners after writing down the value of their land banks and other property assets.
According to a memo seen by the Sunday Tribune, banks are in discussions with several developers to get them to write down the carrying value of their land and then to immediately seek refunds to taxes paid in the 12 previous months.
This threatens to drastically reduce the corporation tax receipts the Revenue were hoping to have collected.
The drive for refunds on previous tax bills is being used by many leading developers, and companies generally, to tap into cashflow not previously available.
The Revenue Commissioners have confirmed that developers are entitled to recoup taxes paid in previous years if they take an impairment charge on their properties as a result of the property slump, but would not comment on the potential scale of the clawbacks they are now facing.
But the memo seen by the Sunday Tribune says the issue is a serious one for the Revenue and will reduce their corporation tax receipts for 2007 and 2008 when they are eventually tallied.
Land values, depending on the exact location, have declined by between 20% and 40%, over the last 18 months, it is estimated.
This means the carrying value of these lands will be hugely reduced, triggering considerable refunding by Revenue.
A senior tax practitioner said: "It is quite an active area at present. Banks are asking property developer clients to improve their cashflow in whatever ways they can.''
The practice of offsetting property write-downs against previous years tax bills is perfectly legal, although it was a device rarely used during the property boom because of rising asset prices.
"The decline in the value of stock has led banks to encourage developers to write down the value of their land to current market values," said Paula Keaney, a tax director of Grant Thornton, the accountancy company.
"We have certainly seen a number of these write-downs over the past number of months and we expect to see more of them in the future," she said.
The only danger in writing down the value of their assets for developers is they may breach their banking covenants.
This is because the loan to value ratio may fall below a certain point stipulated by their lender.