This new departure was revealed in Revenue letters to Kerry Co-op milk suppliers this week, requesting that they review their tax returns for the years 2011 to 2013, on the basis that they received Kerry Co-op patronage shares.
Revenue says the value attributable to those shares should be factored into the income tax, USC and PRSI returns of those years.
Interest and penalties would also be liable for unpaid taxes. Last Monday, an estimated 400 of the 3,400 Kerry suppliers got letters from Revenue, with tax bills for patronage shares given in 2011, 2012 and 2013.
In the Dail this week, Kerry Fianna Fáil TD John Brassil led calls on the Taoiseach to bring the Revenue Commissioners Chairman before the Oireachtas finance committee to explain the “out of the blue” tax demand which, he warned, “will put many farmers out of business”.
The Taoiseach said, “I will bring the matter to the attention of the Minister for Finance, but he does not direct the Revenue Commissioners to do or not to do something.”
Revenue are thought to be estimating the market value of the shares at €65 to €90 each.
In his advice column on page seven, chartered tax adviser Kieran Coughlan says the tax payers can make a disclosure to Revenue with the minimum penalties.
But, where a tax payer fails to deal with the query within 21 days, Revenue can move to audit phase, and higher penalties.
Tax payers who cannot meet the unexpected tax liabilities arising are advised to consider making a disclosure, while simultaneously consulting with Revenue with a view to putting in place an acceptable instalment arrangement.
With regard to likely penalties, Kieran Coughlan says it seems implausible for Revenue to consider the matter as deliberate default (which would attract higher financial penalties) by such a large cohort of Kerry suppliers.
“The nature of the letter issued to tax payers is more an invitation for taxpayers to engage, rather than a heavy handed dictate.”
However, the seriousness of the communication advising the dairy farmers of a potential under-declaration of income, should not be underestimated.
So far, letters refer only to the years 2011 to 2013, although Kerry allocated one new co-op share for every 1,000 gallons of milk supplied for each year between 2007 and 2013.
And Mr Coughlan says farmers are also wondering will tax collection be rolled out further, to cover bonus shares issued by co-ops as a result of trading activities.
Meanwhile, Independent Senator Rónán Mullen has demanded a Department of Agriculture investigation into allegations that a Co Cavan poultry farmer was forced out of business, and lost €25,000 a year, because he had not participated in certain arrangements involving VAT avoidance.
He was producing over 1m chickens a year on the family farm, as well as cattle and sheep.
Speaking in the Senate, Senator Mullen said a complaint was lodged by Marian Harkin, MEP, to the European Commission, on behalf of the farmer, about possible VAT avoidance schemes in the Irish poultry sector, involving the 5.2% flat rate VAT credit for farmers who are unregistered for VAT, which compensates them for VAT they pay on farm inputs.
Asked in the Dáil about the VAT avoidance allegations, Finance Minister Michael Noonan said he has the power to make an order excluding particular agricultural goods or agricultural services from the flat-rate VAT credit.
“This power can be exercised where Revenue has carried out a review, and the Minister for Finance is satisfied that, because of the business structures, contractual arrangements or models in place in a particular sector, the application of the flat-rate addition within that sector has resulted in, and would otherwise continue to result in, a systematic excess of flat-rate addition payments over VAT on inputs incurred by flat-rate farmers in that sector.”
He said the review by Revenue will provide an opportunity for the sector under review to change its structures as necessary, and there is no specified time in which the Minister for Finance must decide on restrictions to the flat-rate scheme.
He said his department and the Revenue Commissioners have a legal obligation to protect taxpayer confidentiality, and due to the small number of taxpayers involved in this particular sector, they were precluded from commenting further.