The company ladled £160m of its cash flow into the tax avoidance scheme before the Government stepped in to make the arrangement less attractive.
A National Grid spokesman yesterday confirmed the existence of the "special purpose" firm and defended it as: "a tax-efficient way of managing the company's money which is our duty on behalf of the shareholders. It is part of our treasury function, and normal practice for UK companies that have big cash flows."
He also confirmed the previous use of another tax-avoidance arrangement in the Channel Island of Guernsey, but said this had been closed down last year. NGC does not sell electricity in either Dublin or Guernsey.
The Shadow Chancellor Gordon Brown condemned the tax-dodging schemes, saying: "National Grid seem to have gone to extraordinary lengths to fleece the public.
"Share options are one thing, but using foreign centres as tax havens is a new direction in the betrayal of the consumer."
Analysts calculate that NGC saved £1.2m of tax in 1993 and a further half a million pounds last year on the money it invested in the International Financial Services Centre in Dublin's former docklands.
The special purpose company, set up by National Grid to process its massive cash surplus, paid tax on its profits at a rate of 18 per cent, or just over half the rate in the UK.
These arrangements were allowed under European Commission rules aimed at attracting jobs to the IFSC, but the British Government has gradually closed the loophole and no new entrants to the IFSC are now allowed. A special 10 per cent tax rate available to investors on some of their profits will disappear after 2003.
Disclosure of the tax dodge follows the leaking of a letter from Michael Heseltine, President of the Board of Trade, to the Prime Minister, admitting that there are "potentially more causes cele`bres" of greed in the boardrooms of privatised utilities.
The Shadow Environment Secretary Jack Cunningham yesterday wrote to Mr Heseltine, pointing out that his own department's figures showed that the utility company directors had given themselves pay rises as high as 52 per cent a year, plus large share options worth millions of pounds.
Mr Cunningham wrote: "You are clearly aware of the widespread abuse of monopoly power among the privatised utilities but seem unwilling to investigate further.
"What action do you intended to take to end these unjust abuses in executive pay and share options in the privatised utilities?"Reuse content