Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

Question 4: To ask the Minister for Finance if a preliminary finding has been received from the European Commission that this country's tax exemption for income from stallion fees is in breach of EU competition law; when the exemption was first drawn to the attention of the Commission; the details of the response which the Government has made to the finding; the action he will take arising from the finding; and if he will make a statement on the matter. [2614/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

The European Commission was advised of this relief in 1982 and on a number of occasions since then. The Commission has not given a preliminary ruling on this exemption. The Commission was in correspondence with my Department regarding this exemption most recently in April 2004 when it asked for information which would allow it to "establish whether the exemption may be considered compatible with state aid rules". This would clearly imply that the Commission has not made a determination on this matter. The requested information, which included details on the number of stallions, price of nominations, the relevant tax brackets, the estimated number of beneficiaries as well as a precise description of the exemption, was supplied to the Commission in July 2004. No further communication has been received from the Commission to date.

Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

Does the Minister accept that, in effect, the European Commission has made a preliminary finding regarding the tax relief for stallions? Has the Government made any further responses recently to inquiries from the Commission for more information, particularly on the point that Irish tax rules relating to stallions breach competition law and act as a State aid to stallion owners and companies in Ireland? Why did the Department of Finance not advise the European Commission about this scheme? It started in 1969 and Ireland joined the European Union in 1973. The Department does not appear to have advised the Commission until 1997, when the scheme was extended. The Department seems to have been aware that, since February 1999, there was no proper notification to the European Commission as there ought to have been. Does the Minister have a view on the implications of this scenario?

In recent days, the Minister acknowledged to me in answer to a written question that there is now the phenomenon of the non-resident stallion. In the rules as redefined and reclarified, the owner of a stallion which is non-resident for up to six months in any year can continue to benefit from tax relief. How will the Commission's preliminary findings impact on this phenomenon?

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

All I can do is ask the Deputy to listen to the reply when I give it. There is no preliminary finding on the exemption and the Deputy's assertion that there is does not make it happen. The Deputy has also suggested that we have not been in touch with the Commission. We have answered any time it has contacted us about the matter. The Commission was advised of the relief in 1982 and on a number of occasions since. There is no mystery about it. As there has been no preliminary finding, I cannot give an answer to supplementary questions which were predicated on the assertion that there was. The Commission contacted us last in April 2004 and we answered in July 2004. We have not heard from the Commission since. The idea that the matter is exercising everyone's mind on a weekly basis and that some mystery attaches to it is unfounded.

I will explain the background to the relief. The stallion stud fees exemption was introduced in the Finance Act 1969 to encourage the development of the Irish bloodstock industry by creating an incentive to invest in Irish stallions. It applied to stallions standing at stud in the State and abroad. Income arising to the owner or part-owner of a stallion from the sale of services or the right to services is exempted from taxation but losses may not be set off against other income. Income from a stud farm is charged to tax in the same way as other profits from farming. The income which is charged to tax in full includes income from the keeping of mares and stallions at a farm. The only income which is exempt is the income arising from stallion fees. While the legislation was amended in the Finance Act 1985 to confine the tax exemption on stallion fees to income earned from stallions at stud in the State, income arising to a part-owner of a foreign-based stallion continued to be exempted where the share had been acquired by a breeder for the purpose of acquiring new breeding lines for a bloodstock enterprise carried on in the Republic of Ireland. That exempting measure is now contained in section 231 of the Taxes Consolidation Act 1997.

A key test of the entitlement to the exemption is whether a stallion is ordinarily kept on land in the State. An administrative ruling issued in November 1986 by the Revenue Commissioners in response to a perceived downturn in the industry confirmed that they would continue to regard as ordinarily kept on land in the State any stallion demonstrated to be temporarily exported for genuine commercial purposes for a period not exceeding two years. The ruling was withdrawn by the Revenue Commissioners in September 1998. Since then, stallions which are sent abroad to cover mares, mainly to the southern hemisphere and commonly for a period of up to six months, are regarded as ordinarily kept on land in the State. Except as otherwise provided for in the legislation, only those profits arising in the State are exempt.

As Deputy Burton knows, a study in this area was carried out by Indecon on behalf of the Irish Thoroughbred Breeders Association which suggested the estimated gross tax forgone was €3 million. We will have to conduct our own examination of the matter based on whatever information we can glean from this year's review. There are all sorts of questions. Of the yearlings which result from all this bloodstock breeding activity, 85% are exported and cost approximately €140 million. All this money is subject to taxation.

Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

Stallions can be non-resident for six months a year with their owners still benefitting from the tax break. This tax break is in place at a time when pensioners pay tax on modest incomes. Are there tests of what constitutes six months non-residence for stallions? In particular, does the Cinderella rule apply? For example, if a stallion is out of the country before midnight, does that count as a full day?

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

I am taken by the obsession of the Labour Party with the stallion.

Finian McGrath (Dublin North Central, Independent)
Link to this: Individually | In context

Has the Minister tips for tomorrow's races?

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

Indecon, which is regarded a reputable team of consultants, independently compiled a report on behalf of the Irish Thoroughbred Breeders Association and Horse Racing Ireland. Indecon estimates the gross figure foregone is €3 million, although I do not say I agree. I will find out about the Cinderella clause, about which the Deputy is worried, and whether a stallion must be out of the country before or after midnight. That does not make much sense but I will inquire into it.

Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

It is important for non-resident taxpayers.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

I did not know they had to be accompanied by a stallion.