Ireland has one of the best records on state aids in the EU, according to official EU documentation.

It has emerged that many EU countries are operating state aids that have never been notified to the Commission. These may now be in danger of being revoked, and their beneficiaries may even be pursued to repay the benefits. Among the worst offenders are Holland and Belgium, with France a close third.

However, the Government may still be forced to change the taxation of Irish multinationals and end film industry and patent income relief, as well as having to change the treatment of petroleum and mining companies.

The alleged state aids, which include those at Dublin's International Financial Services Centre (IFSC), are being examined by a special committee that is due to present an interim report to finance ministers at the end of May.

The committee has so far identified a list of some 200 state aids operating across the EU. The list, seen by The Irish Times, includes only 15 Irish entries, most of which are already being dealt with by the Commission.

Schemes that will be coming under the Commission's microscope include those relating to Luxembourg finance companies and company law in Gibraltar and Trieste, Italy.

The Monti group will also be looking at regional incentives, including enterprise zones in the UK and the treatment of small and medium sized firms in Northern Ireland. The sheer volume of unnotified state aids has taken the Commission by surprise. Some countries are pushing for an agreement that would get rid of all the so-called aids, particularly in the Nordic countries, Germany and France.

However, others, including Ireland, believe there is a role for regional aids, along with specific exemptions to encourage research and development, as well as specialist activities such as filmmaking.

Among the Irish reliefs on the list is the Shannon zone. However, its special relief runs out in 2005, after which it will operate in accordance with the code of conduct.

The same is broadly true of the 10 per cent manufacturing rate and the special rate for companies in the IFSC, which will be phased out and changed to 12.5 per cent in 2003.

Other alleged state aids are those relating to petroleum and mining taxes. Both of these are currently set at 25 per cent, and there are no plans to change them. After January 1st, when corporation tax falls to 24 per cent, this should not be a problem, as a high tax rate cannot be considered harmful, according to sources.

There are bigger questions over the special treatment of foreign income, which currently allows Irish multinationals such as CRH and Smurfit to bring back money to invest without paying tax. This is discriminatory, but the Irish authorities will argue that other countries simply do not tax any group.

Nevertheless, there is a strong possibility that this special treatment will be abolished, with the authorities arguing that it will no longer be needed when Irish tax is below the levels of most other countries.

There are also problems relating to the tax-free status of patent income. However, sources point to incentives for research and development in other countries and, particularly, to a French tax credit for research.

The film industry is another area that could be hit, although Luxembourg and the UK both provide similar reliefs. Overall, observers believe that the list is a larger problem for countries such as Holland, where the widespread availability of special reliefs is causing uncertainty for companies looking at locating there. "This is actually very good news for the IDA and Ireland's industrial policy," said one source. "All the main tax incentives have been formally approved, along with the measures central to enterprise development."