Government to scrap stallion tax break

THE Government will abandon the long-standing tax exemption for stallions in December’s Budget after failing to persuade the European Commission that it is a legitimate state aid.

The Irish Examiner understands from informed sources in Brussels that the Department of Finance has given a commitment to the EU Agriculture Commission that it will address the issue in the Budget and will change the rules.

In the face of what the source described as a very strong stance adopted by the commission, the Government has all but conceded that the controversial tax break - introduced by Charles Haughey in 1969 - is an illegal state aid. If the commission makes a final ruling that the incentive is illegal under state aid rules, it may result in the Government being levied millions of euro in compensation. It is understood the question of possible financial redress is one of the outstanding issues yet to be resolved.

Officially, the commission is awaiting a final Government response on its preliminary determination that the stallion tax amounted to an illegal state aid to the bloodstock industry.

Yesterday, Finance said that its final response would not be completed for another four to six weeks. However, representations made by the Government - which included a visit to Brussels by Finance Minister Brian Cowen and Agriculture Minister Mary Coughlan earlier this year - have cut little ice with the commission’s agriculture and rural development directorate, which insists that the exemption has to be scrapped.

“They would need to come up with very convincing arguments that nobody has thought of before. That is highly unlikely,” said the source.

The Government, while accepting that the rule will have to change, has so far not given a final commitment to scrap the break. Given its strong support of the thoroughbred industry, it is likely that the Government may seek to establish a new incentive for the stallion industry that does not fall foul of state aids.

Then EU Agriculture Commissioner Franz Fischler made a preliminary finding in April 2004 that the stallion tax was an illegal state aid, following a formal complaint made in July 2003.

It also criticised Ireland for its failure to inform the EU about the tax break, as is required under EU legislation, during the 35 years of its existence.

In its findings, first reported in the Irish Examiner, the commission specifically requested the Government to supply estimates of how much tax had been foregone by the State over the previous 10 years.

The Government was unable to supply these figures as stallion owners were not required to file tax returns for profits from stud fees.

The only estimate to have been done to date is one carried out on behalf of the industry which showed the tax break was worth €3 million per annum. That figure has been queried by the opposition.