The Irish tax authority is on a mission to find the source of money used to purchase Irish owned properties abroad and to discover if the owners are generating any taxable income. The probe could have a huge impact on tens of thousands of Irish overseas property investors.

Irelands Sunday Business Post reports that in an effort to assist its investigation, the Revenue authority is adopting a range of more intrusive techniques. These include an examination of foreign tax returns and a trawl of deposit interest earned on foreign bank accounts held by Irish citizens.

Tom Weymes, principal officer with the Revenue’s offshore assets group. ‘‘Our main focus is hot money, money that was never declared to the Revenue for tax purposes. We want to see if any hot money has been used to buy overseas properties”

Hot money, according to Weymes, can be any form of lump sum - from an inheritance to a gift - that has not been declared to the Revenue. During its previous trawl into offshore bank accounts (which recouped more money than any other Revenue investigation), it was discovered that one way of hiding hot money was to plough lump sums into property assets.

‘‘That is why we are focusing on property, particularly overseas property,” said Weymes. The ultimate goal is the difficult task of compiling a comprehensive database detailing all Irish buyers of overseas properties over the past five years.

Most individuals who buy a foreign property for personal use, such as a holiday home, do not have to make a declaration to the Revenue in relation to the property. However, individuals must notify the Revenue if they are earning a net profit from renting it out.

Under a recent European information sharing protocol called the EU Savings Directive, the Revenue is provided with details of the deposit interest earned by Irish residents on overseas bank accounts.

Already, the Revenue has received details of thousands of Irish individuals with such deposit interest. The tax authority recently sent off an initial tranche of letters to Irish individuals requesting further information.

The Revenue is investigating if money from those bank accounts has been used to buy overseas properties, and if the money involved has been declared.

The Revenue will assess the results of this initial trawl before deciding whether to scale up its examination of the information gleaned under the directive.

The tax authority has also entered exchange of information agreements with its counterparts in a number of countries, including Spain, France and Britain. This cooperation has enabled the Irish Revenue to access foreign tax returns filed by Irish citizens.