Pension funds are tax-exempt on their investments except for trading activities and the Revenue's argument is based on the claim that sub-underwriting amounts to trading.
A Revenue spokesman said preliminary work had been done and the findings were likely to go the Commissioners of the Inland Revenue prior to a test case against one pension fund. He said that, although attempts to levy tax had been dropped five years ago, conditions in the financial markets had changed sufficiently to justify a revival.
Representatives of big pension funds are to meet in the next few days to discuss their defence against the initiative.
Geoff Lindey, chairman of the investment committee of the National Association of Pension Funds, said: 'We thought it had gone away, either because they thought they wouldn't win or because they wouldn't get much revenue.
'Our view is that they haven't a strong case and even if they did the revenues would be minimal if not zero.' A tax would lead to a huge amount of paperwork to achieve very little, he said. Pension funds might withdraw from sub-underwriting, which would become more expensive. Merchant bankers echoed his concern.
The meeting would discuss what developments there had been that could have changed the Revenue's position.
The test case will run counter to Treasury concerns that share issues to raise capital are too expensive and should be more flexible.Reuse content