John Brassil (Kerry, Fianna Fail)
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I raised this issue in the Dáil yesterday. On Monday morning 400 farmers in County Kerry received a letter from the Revenue Commissioners requesting a payment for under-declaration of income based on patronage shares they had received from Kerry Co-op. To say this was a shock to the system is an understatement. We have spent the past six months in this Chamber fighting the cause of the agriculture sector. We have had extremely bad weather and poor milk, grain and beef prices. To receive a letter of this nature, unannounced and without warning, was to say the least a shock to the system for every farmer who received it.

My understanding of the tax code as it pertains to shares is that a share is only a piece of paper until such time as the shareholder cashes it in and realises its value, at which point capital gains tax or other taxes due are paid. I am not sure from where Revenue is coming on this issue because it has been long-standing practice to issue patronage shares. During the years many farmers have declared patronage shares in the accounts they or their accountants have submitted to Revenue and no issues have arisen. On Monday morning, however, an issue suddenly arose with them.

Yesterday I spoke to a farmer who had received one of these letters, despite being given a clean bill of health following a full Revenue audit. There is something systemically wrong when someone in the Revenue Commissioners can issue letters requesting the payment of outstanding tax on the basis that he or she has determined there has been an under-declaration of income. The nature and tone of the letter are even more worrying. I will read an excerpt:

This intervention is being conducted as an Aspect Query. This affords you the opportunity of making an Unprompted Voluntary Disclosure under the Code of Practice for Revenue Audit and other Compliance Interventions thereby minimising potential penalties together with avoiding publication and prosecution if all conditions attaching to making such a disclosure are met.

In other words, if the farmer does not pay up, Revenue will perform an audit, impose tax and penalties and put his or her name in the newspaper. This is, to say the least, heavy-handed. To add insult to injury, the letter states Revenue looks forward to hearing from the farmer in question within 21 days. Farmers are hard pressed to find money and most have been forced to sell animals to pay their income tax bills for the year. They now face bills of between €25,000 and €50,000 and have only three weeks in which to pay. Where is the fairness and justice in that? It is beyond comprehension that something like this can happen, particularly in farming which is under great pressure.

This is only the start of the process because the issue affects all co-operatives, including Glanbia and Dairygold, and may even extend to shares issued outside agriculture. The matter must be tackled. I ask that the chairman of the Revenue Commissioners appear before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach to explain the position.

Niall Collins (Limerick County, Fianna Fail)
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I thank the Ceann Comhairle for selecting this matter for discussion. This is an important issue for me and the farming community I represent in County Limerick. My colleagues and I fully respect the work and independence of the Revenue Commissioners who have a difficult job which they do professionally. Equally, however, we are fully within our rights in raising this issue and querying the actions of the Revenue Commissioners.

The issue we are discussing must be viewed against the backdrop of what farm families have been experiencing in recent years. I am sure the Minister of State in the Department of Finance, Deputy Eoghan Murphy, is aware of the background. Milk and beef prices have been substantially suppressed in recent years. This has impacted directly on the margins and incomes of many farm families, thousands of whom rely on the family income supplement and survive from hand to mouth. The Common Agricultural Policy has been reformed, milk quotas have been eliminated and the prospect of Brexit has created considerable uncertainty which is impacting on the agriculture sector and caused great worry for farmers and their families. In addition, the farming community has expressed fear and concern about proposed international trade agreements such as the Transatlantic Trade and Investment Partnership, TTIP, and the Canada-European Union Comprehensive Economic and Trade Agreement, CETA, both of which are causing uncertainty in terms of increased competition and price suppression.

Against this backdrop, it was also revealed recently to the Fianna Fáil Party spokesperson on agriculture, Deputy Charlie McConalogue, that only 50% of the funding allocated under the rural development programme had been paid out to farm families this year. Of the €494 million provided across the various schemes, including the agri-environmental options scheme, the green low-carbon agri-environment scheme, GLAS, and the rural environmental protection and early retirement schemes for farmers, only €256 million has been paid out thus far this year.

This is the context in which farm families are operating. In recent days Revenue dropped a bombshell in seeking to change the treatment of patronage shares which suppliers and members of Kerry Co-op have received during the years. Farmers are not trying to evade or avoid tax. They are happy to pay tax, but they need to be given a degree of certainty. Patronage shares have always been treated under the capital gains tax code. Revenue has changed tack and appears to be seeking to treat these shares under the income tax code and, moreover, to do so retrospectively. This has caused immense upset among people who have been asked to find significant sums to pay Revenue and meet their obligations. Farmers have already made their cashflow management plans for the coming years and will have made commitments to purchase machinery, make repayments on investments in buildings and engaged in general business planning. As with all other businesses, farms must be managed on the basis of plans. Has Revenue changed its interpretation of the tax code in respect of patronage shares? If so, people need to know the reason it has done so. As Deputy John Brassil stated, people have been given tax clearance following Revenue audits.

It has also been noted that the Kerry Group had an obligation to inform its members of this issue. Where does the company stand on the matter? I ask the Minister of State to provide some clarity on these matters because Deputies need to be able to reassure their constituents that they will be dealt with in a fair and proportionate manner, rather than being subjected to the threatening language used in recent correspondence.

Michael Moynihan (Cork North West, Fianna Fail)
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I thank the office of the Ceann Comhairle for allowing Deputies to raise this matter. Approximately 400 farmers received a letter from the Revenue Commissioners yesterday on shares issued by Kerry Co-op. I understand Revenue has been through the mill on co-op shares which it refused to accept as income, determining instead that they were subject to capital gains rather than income tax when they were sold. Some people questioned this determination and I understand Revenue made clear at the time that the 33.3% capital gains tax rate applied to these shares. Why has the position changed on this type of share? As my colleagues stated, clarification is required on the issue.

If an issue arose with these shares, it should have been flagged to avoid farmers reading the letters which Deputy John Brassil cited at their kitchen tables. The language used is unacceptable. The farmers involved submit income tax returns and some of them have paid capital gains tax on income received from the sale of Kerry Co-op shares. They did so with the approval of the Revenue Commissioners, including in years for which the Revenue Commissioners have stated an income tax liability arises. They traded shares and paid capital gains tax on the income from such sales and the Revenue Commissioners subsequently issued them with tax clearance certificates. Why has this change been made without first warning farmers?

Everyone understands and accepts it has been a ferociously difficult year for farming, particularly for the dairy industry. The price of milk has been at its lowest in a generation and yet the Revenue wrote willy-nilly to the farmers in question and has indicated more letters will be going to other farmers involved. There should have been some indication as to what Revenue was thinking.

How come Revenue changed its mind? It is not as if these shares were not declared by farmers to the Revenue Commissioners. In some instances, they have traded the shares, paid the 33% capital gains tax on them and were given the okay by the Revenue Commissioners. Given this development, a farmer with 70 cows producing 70,000 gallons of milk could be landed with a bill of €10,000. Anyone who knows the farming community knows that after one of the most difficult trading years in living memory, such a farmer would not even have 10,000 cent to pay the Revenue Commissioners, let alone €10,000. This is high-handed and needs to be explained. As my colleagues said, the Revenue Commissioners need to give us an explanation. The whole issue has to be revisited because it has put fear into the farming community in the Kerry Group region, as well as other farmers in milk processing. Will the Minister of State clarify the situation? The Revenue Commissioners owe us a detailed explanation so we can inform our constituents of their thinking.

Eoghan Murphy (Dublin Bay South, Fine Gael)
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With regard to Deputy John Brassil's proposal that I request the chairman of the Revenue Commissioners to appear before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach, it is a matter for the committee to set its own work agenda and to issue invitations accordingly. I am sure the Deputy will request the committee to do that himself.

Since the establishment of the Revenue Commissioners in 1923, successive Governments and the Oireachtas have reaffirmed the principle of the independence of the Revenue Commissioners in their dealings with the tax affairs of any individual under tax and customs legislation. This independence is seen as critical to maintaining the integrity of the taxation system and forms a key pillar of Revenue's governance framework.

I can, however, address the issue of the taxation of the shares received by Kerry Co-op suppliers. It is my understanding these shares were received by milk suppliers, as a consequence of and in proportion to, the quantity of milk supplied. The shares are, therefore, a payment received by the farmer for their milk supply and form part of the farmer's trading income for the relevant year. This is similar to the general tax treatment applying in respect of share-based remuneration for employees other than certain restrictive Revenue-approved share schemes. Employees are liable to income tax, USC and PRSI on their share awards for similar reasons, namely, the share award is linked to their work and is, therefore, treated as taxable employment income. To apply a different treatment to farmers who receive valuable shares as a result of their ongoing trading relationship with the co-operative would call into question the taxation of all forms of share-based remuneration received by employees or self-employed contractors in other sectors of the economy.

It must be accepted the patronage shares received by the co-op members are valuable assets. The shares can be sold for cash, they can be gifted or transferred to a new owner, and they convey voting and dividend rights on the shareholder. In many cases, the values received by farmers were considerable. For example, in 2013, the value received by farmers ranged from zero up to €39,330, with the average value received being approximately €4,860. The receipt of shares to this value would have been disclosed by many farmers to their accountants. The letters issued by Revenue this month have in the first instance been inquiries as to whether the values received have been included in their accounts. Farmers who were tax compliant and disclosed the value received will, therefore, not be facing any additional income tax. It would be inequitable for those farmers who did correctly declare this income if Revenue did not follow up on those who did not.

In regard to the questions raised by Deputies Niall Collins and Michael Moynihan, there has been no change in policy on the imposition of income tax or capital gains tax to such awards. Capital gains tax applies to the growth in value of a capital asset. For example, where an individual sells a share that has grown in value since the time it was acquired, capital gains tax would apply on the increase in value. The matter at issue in this case is the original market value of the shares received by the farmers as a result of their trading relationship with the co-op. The shares were a form of payment received for the milk supplied by the farmers. Accordingly, the value of the shares forms part of the trading income of the farmers for the relevant years.

I am aware of the difficulties facing dairy farmers this year as a result of falls in milk prices. Several measures have been taken to assist such farmers, particularly in unusually poor trading years. Farmers may already elect for income averaging, which allows them to average their income over a five-year period for the purposes of calculating taxable profits to smooth the volatility which can occur in farm incomes. In budget 2017, the Minister for Finance introduced an opt-out from the scheme so as to allow farmers experiencing a particularly difficult year to opt out of the scheme in that year, pay the tax liability for that year's profits alone, and then return to income averaging in the subsequent year.

I would advise any farmers who have received this letter from Revenue to discuss it with their agents to ascertain if any additional liabilities are due, and, if so, to make contact with the Revenue Commissioners.

John Brassil (Kerry, Fianna Fail)
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There does not seem to be any solace in the Minister of State's reply for the farmers who received these letters yesterday. The Revenue Commissioners stated they look forward to hearing from the recipient within 21 days. Will the Minister of State clarify if Revenue will pursue all the individuals in question for penalties and extra payments and subsequently publish their names in the newspapers? That is what is written down in the letter I read out to the Minister of State earlier.

A share price is only realised on the day it is sold. These happen to be Kerry Group shares. What if these were shares of less value or if the share price had completely collapsed? Where would one be then, having paid income tax on a share which is worthless? I am struggling to come to terms with Revenue's analysis. If it is to be taxed at the income tax rate, then it should be when the shares are sold. One cannot ask somebody to pay income tax on what is effectively a piece of paper. This happens in cases where companies reward employees with bonuses of shares, namely, the tax is paid when one realises the value of the share.

At the very least, I request that each individual will be written to again and told this issue will be dealt with in a fair and timely manner, as well as removing the threat of prosecution, penalties and the publication of the individual's name in the newspapers?

Niall Collins (Limerick County, Fianna Fail)
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I thank the Minister of State for his reply. He stated this is similar to the general tax treatment applied in respect of share-based remuneration for employees. He will appreciate that farmers are self-employed and there is a distinction in the tax code between employees and self-employed. That needs to be teased out a little further. Revenue should look at that to see if we can try to resolve this issue.

I am sure Revenue has been aware of patronage shares in Kerry Co-op and in other co-ops across the country, if it pertains to those such as Dairy Gold. The Revenue Commissioners will have been in receipt of capital gains tax returns from those who sold these patronage shares over the years. Why are the Revenue Commissioners now claiming they have to be treated through the income tax part of the code? This does not make sense and we deserve an explanation for that.

The Revenue Commissioners should afford the people in question a large degree of forbearance for all the reasons I outlined earlier, including the pressures the farming sector and farm families have experienced over the past several years.

As I said, nobody is trying to evade or avoid tax. People are happy to meet their obligations but want fairness and recognition that they are self-employed rather than employees, as outlined.

Michael Moynihan (Cork North West, Fianna Fail)
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I thank the Minister of State for the reply. It states, "Farmers who were tax compliant and disclosed the value received will therefore not be facing any additional income tax." As I understand it, all farmers declared the shares in their tax returns and have done so for a long time. It is bordering on insulting to use the line I have quoted. All the farmers were declaring the shares to the Revenue Commissioners for a long time. As my colleague said, the Revenue Commissioners have collected capital gains tax on the sale of these shares. It is only when the shares are part of a spin-out from the co-operative to the plc that they become valuable. To be fair to the farmers, they have been tax compliant and have been submitting information to the Revenue Commissioners. It is quite clear that the Revenue Commissioners have taken a policy decision in regard to them. Why are they changing policy? Why the heavy-handedness in the letter, including the reference to responding in 21 days. The Revenue Commissioners should have examined this in a proper, calm and rational way.

The Minister of State is implying in his response that there are farmers who are not tax compliant. According to my information and that of the many farmers to whom I have spoken over the past 36 to 48 hours, they are tax compliant. The Revenue Commissioners and the Department need to recognise that and ensure the view is not being circulated that farmers are not tax compliant. They have been declaring the full value of the shares to the Revenue Commissioners for a long time and they have been paying capital gains tax on any occasion they sold the shares, for whatever reason. Perhaps the Minister of State will re-examine this. The shares become valuable only if there is a spin-out to the plc. Perhaps clarification is needed on that. Forbearance and common sense need to apply.

Eoghan Murphy (Dublin Bay South, Fine Gael)
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I very much appreciate the concerns of the Deputies on this issue but I must underline again the independence of the Revenue Commissioners. The Department of Finance does not deal with the individual tax affairs of citizens. I suggest that the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach takes up Deputy Brassil's suggestion and examines this issue so it can be explained properly and fully by the Revenue Commissioners. There has been no change in policy and no one is operating on the assumption that someone may not be tax compliant.

In so far as the letters issued are concerned, the wording is standard wording used by the Revenue Commissioners for all forms of aspect queries. If the shares were not mentioned during the course of an audit, they may not have been considered by the auditor. It is not necessary to pay the liability within 21 days; it is necessary for farmers to assess their situation and make contact with the Revenue Commissioners.

Capital gains tax would have applied on the uplift in value of the shares. The case raised relates to the original market value received, that is, the base cost that could have been deductible for capital gains tax purposes. This is a matter for the Revenue Commissioners but, in general, where a taxpayer co-operates with the Revenue Commissioners and makes a voluntary disclosure, publication does not apply. This is an issue faced by employees also. In many cases, they choose to sell a proportion of shares in order to pay the tax due and hold the balance. With regard to how the Revenue Commissioners might collect any tax due, they offer a wide range of payment and phased-payment options that would allow affected farmers to meet their income tax obligations in a manner that best suits their individual circumstances. Affected farmers are advised to engage with the Revenue Commissioners early to address the issues raised. The 21-day period mentioned in the letter is about making contact with the Revenue Commissioners. There is not a demand for payment within 21 days, even on the assumption that there is a liability. The letter makes reference to where there may be a concern or something to be declared. In cases where a full disclosure was made in a tax return, it is unlikely that any taxation or additional taxation is due.

On why the shares are being treated as taxable income, they are patronage shares issued by a co-operative to members arising from the trading relationship between the member and co-operative. In effect, the greater the business links between the milk supplier and the co-operative, the greater the benefit and, therefore, the profit received by the supplier by way of a number of patronage shares issued by the co-operative.

I am aware this is an issue of concern and that there are details to be considered. I have more detailed notes that I would be happy to share with the Deputies so that they might understand the approach from the Revenue Commissioners in so far as the Department of Finance is concerned. However, this is a matter for the Revenue Commissioners in so far as its operations are concerned in this area of patronage shares and the letters that have recently been issued to the farmers concerned.