High-earning US citizens are using Irish companies to avoid tax, according to an international finance magazine.

In its cover story the US edition of Forbes states that many dentists, doctors and small business owners in the US are channelling their income through Irish employee-leasing companies, with the money eventually ending up in a trust in a Caribbean tax haven.

The Why Pay Taxes? report explains that, by entering into a complex series of arrangements, these high earners can accumulate wealth on a tax free basis. "A dentist for example signs an employment contract with a foreign (usually Irish) employee leasing company, which then leases his services to a US leasing company, which in turn leases his services back to his practice".

Forbes says that, as part of his employee contract with the Irish company, most of the individual's salary is diverted into an illegal deferred-compensation plan and held in a so-called "Rabbi Trust" in a Caribbean tax haven.

Forbes says that one doctor paid $55,000 (€60,726) to set up such a scheme, with the leasing company and the trust manager claiming large annual fees. These "push-the-edge" and "over the edge" shelters are being marketed extensively in the US and are contributing to the estimated $200 billion lost by the US Treasury every year as a result of tax evasion.

This scheme was discovered by the US Internal Revenue Service (IRS), which has set up a hotline for whistle-blowers to leave tips on shelters about big companies. Most of the tip-offs referred to schemes engineered for wealthy individuals and small businesses.

A number of prosecutions have followed with the IRS criminal investigation branch closing in on tax havens that facilitate these illegal activities.

The IRS website says it is very difficult to determine precisely the amount of fraud attributable to these schemes because of their design and inherent complexity. "However, it can be said that these schemes are directed towards taxpayers with at least six-figure incomes and the potential for lost tax revenue could be massive." A spokesman for the Revenue said it had not received any approaches from the IRS on the scheme. "We are not aware of this type of operation and would be concerned about it if Irish companies were involved. We have not been asked by the US tax authorities for any information," he said.

The Revenue co-operates with the IRS on tax issues governed by a double taxation agreement which ensure the US citizens working here do not end up paying tax twice.

The Department of Finance also expressed concern about the practice yesterday.

IDA Ireland, which promotes the economy to international investors and has been particularly successful in winning US investment, will be concerned its job will now be more difficult as a result of the revelations.