Stud farmers face €40m tax bill in EU probe

Ann Cahill and Mary Dundon

Yesterday, EU Agriculture Commissioner Franz Fischler confirmed he had launched a probe after receiving a formal complaint about the Irish practice of granting tax-free status to stud fees.

“As the commission has concerns about the compatibility with State aid rules, this practice is being examined,” he said.

Under EU rules, industry across the union must be able to compete on an equal footing and any kind of state aid in the form of handouts or tax breaks could breach this.

At the end of May this year, a number of British MEPs raised the legality of the generous tax breaks the Irish bloodstock industry has enjoyed since 1969.

If the commission finds the tax breaks are an illegal state aid, then under EU competition rules stud farmers could be liable for up to 10 years in back tax, with interest. The industry estimates the tax would be €3m a year.

The exemptions have been strongly defended by Finance Minister Charlie McCreevy, who has been nominated as Ireland’s new commissioner to Brussels, and could prove a serious embarrassment to him.

Dublin Labour MEP Proinsias De Rossa said Mr McCreevy’s generosity to horse breeders could come back to haunt him. He believes the EU will rule the tax break is an illegal state aid.

“Ironically, if Charlie McCreevy’s nomination to the commission is approved by MEPs in the autumn, one of the first tasks he might be faced with is challenging his own tax exemptions,” Mr De Rossa said.

Mr McCreevy was under pressure before he introduced his last budget to impose a tax on stallions’ fees. Mr De Rossa said the 12.5% corporate tax rate on stallions’ fees above a certain threshold should be considered.

Mr De Rossa said he will be asking if Mr McCreevy has ever notified the commission of existing exemptions, as he is obliged to do under EU state aid rules.

A report on the stud farm industry, commissioned by the Irish Thoroughbred Breeders’ Association, Horse Racing Ireland and the Irish European Breeders Fund, claimed the industry is worth €330 million a year to the economy and supports 4,700 jobs.

It warns that if the tax breaks are abolished much of the industry will go elsewhere and bring with it activities that contribute €37.5m a year in other taxes.