Eugene Murphy (Roscommon-Galway, Fianna Fail)
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We will proceed to Question No. 34, in the name of Deputy Brendan Griffin. He has 30 seconds to introduce it.

Michael McGrath (Cork South Central, Fianna Fail)
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It is bizarre that this question was not grouped. There are five other related questions, Nos. 36, 38, 39, 42 and 82. All the relevant Deputies are present. The questions are pretty much on the same issue, the patronage shares. Why were the questions not grouped? Is it too late for them to be grouped now to ensure everybody gets in? Otherwise everybody may not get in.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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This matter has been brought to my attention. I can see the points being made by Members. I have been given the list of replies, and they are produced on an individual basis. I do not know what flexibility I have. Are there five questions?

Michael Healy-Rae (Kerry, Independent)
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Of course it is five.

Michael McGrath (Cork South Central, Fianna Fail)
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All the Deputies are here.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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There are five linked questions. I accept that as I have examined them. The maximum time is still only 18 minutes so we have to get agreement. I am certainly not going to run over time.

Brendan Griffin (Kerry, Fine Gael)
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Absolutely. It would be farcical if we were repeating questions on the patronage shares issue.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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Does everybody agree that Deputy Brendan Griffin has 30 seconds in which to introduce his question and that the other Members all have a minute? The Minister will be given a chance to reply, and then we will allow the Members to come back in again.

Michael Healy-Rae (Kerry, Independent)
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Each person gets 30 seconds and then a minute afterwards.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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I do not believe we can give everyone 30 seconds. I have to go by the rules.

Michael Healy-Rae (Kerry, Independent)
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To be helpful, what if we all had just 30 seconds in which to start? The Minister could respond to us all and then we would have a minute each afterwards. That is only five-----

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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There are 18 minutes in total. I want to be fair to the Members.

Michael Healy-Rae (Kerry, Independent)
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Of course. That is all we want.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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To me, because the questions are linked, 30 seconds for one Deputy to introduce a question is the same thing. However, if the House wants 30 seconds for each Member in which to introduce his or her question, we will allow that.

Michael McGrath (Cork South Central, Fianna Fail)
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If they were not grouped, Deputies would have 30 seconds each in which to introduce the questions.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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That is not what I am told.

Brendan Griffin (Kerry, Fine Gael)
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If we could deal with them together over 18 minutes, we would do fine.

Michael Noonan (Limerick City, Fine Gael)
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On a point of order, I have no objection to following whatever procedure the House decides but the draft answers I have vary from Deputy to Deputy because there are variations in the questions.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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I thought that myself.

Michael Noonan (Limerick City, Fine Gael)
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I do not want to get up and read out five answers but I will try, in so far as I can, respond to all the Deputies in response to supplementary questions. The Deputies will get the answers anyway as written answers after this session.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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I thank the Minister. Does the House want to group the questions? Am I correct in saying Questions Nos. 34, 36, 38, 39, 42, 59, 74 and 82 are to be grouped?

Michael McGrath (Cork South Central, Fianna Fail)
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Twenty-four minutes now.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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There are 18 minutes overall but there are still only five contributors.

Michael Noonan (Limerick City, Fine Gael)
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When does Question Time conclude?

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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We have approximately 44 minutes left. Everyone must understand that there are 18 minutes overall for this grouping. Deputy Griffin should start his introduction. Otherwise, we will get nowhere.

Brendan Griffin (Kerry, Fine Gael)
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Or we will be looking for a separate Kerry parliament to discuss such matters.

Brendan Griffin (Kerry, Fine Gael)
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34. To ask the Minister for Finance his views on whether industry may no longer be in a position to plan ahead with certainty if the Revenue Commissioners can review decisions already taken and change the tax interpretations on these decisions and implement changes retrospectively, such as seems to be the case with patronage shares of a company (details supplied); and if he will make a statement on the matter. [1496/17]

Michael Healy-Rae (Kerry, Independent)
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36. To ask the Minister for Finance if he will provide a tax yield impact analysis of the recent Revenue Commissioners' change in policy with regard to patronage share schemes, taking into account the average effective rate of income tax of affected farmers, balanced against the adverse impact on capital gains tax yield at 33% and increased VAT flat rate addition payable to farmers; and if he will make a statement on the matter. [1606/17]

John Brassil (Kerry, Fianna Fail)
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38. To ask the Minister for Finance the controls his Department has with respect to the Revenue Commissioners to monitor retrospective tax demands particularly when audits have been carried out and persons are found not to be fully tax compliant; and if he will make a statement on the matter. [1742/17]

Martin Ferris (Kerry, Sinn Fein)
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39. To ask the Minister for Finance the average effective tax rate on income of farmers based in the south west; if he will provide an illustration of the impact on the average farmer on the Revenue Commissioners' treatment of patronage shares as income assuming they sell the shares and pay CGT at 33%; and if he will make a statement on the matter. [1613/17]

Danny Healy-Rae (Kerry, Independent)
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42. To ask the Minister for Finance if, in the event of the Revenue Commissioners' position being upheld in a test case, he will change the legislation such that tax will not arise until the shares are sold, thus aligning it to the position now intended generally for share based reward in an SME context, in view of the recent Revenue Commissioners' change in approach to patronage share schemes being prima facie inconsistent with the overall tax policy approach to the farming sector. [1607/17]

Martin Ferris (Kerry, Sinn Fein)
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59. To ask the Minister for Finance the tax policy logic in forfeiting capital gains tax at 33% in view of the fact that the effective income tax rate is 27%; and his views on whether it is appropriate that the Revenue Commissioners' resources should be deployed in circumstances which will result in a cost to the exchequer if they are successful in sustaining their position. [1614/17]

Brendan Griffin (Kerry, Fine Gael)
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74. To ask the Minister for Finance if he will introduce legislation to ensure that patronage shares of a company (details supplied) will only incur tax when sold, in alignment with the position intended generally for share based reward in a SME context; and if he will make a statement on the matter. [1495/17]

Danny Healy-Rae (Kerry, Independent)
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82. To ask the Minister for Finance the way in which an industry plan can go forward if the Revenue Commissioners can review decisions taken and change the tax interpretations and implement them retrospectively. [1608/17]

Brendan Griffin (Kerry, Fine Gael)
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I thank the Acting Chairman and appreciate his flexibility in allowing all Deputies to contribute. I acknowledge that my colleague from Limerick, Deputy Neville, tried to submit questions on this matter, but they were adjudged to be a duplication. This matter is equally important to him.

As the Minister knows, the Kerry shares issue is causing major concerns. Revenue's interpretation of the law sets a dangerous precedent. I ask that the Minister do everything within his power to address the matter. It is of concern to hundreds of people in Kerry and may have significant ramifications for people all over the country and other industries, given the lack of certainty created by Revenue's treatment of the individuals involved.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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I thank the Deputy, but we are already running into time difficulties. The Deputies only have 30 seconds each.

Michael Healy-Rae (Kerry, Independent)
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This is a serious situation and it will affect the co-operative movement in Ireland if Revenue continues down this road.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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I thank the Deputy for his co-operation. Has Deputy Michael McGrath raised a similar question?

Michael McGrath (Cork South Central, Fianna Fail)
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No.

John Brassil (Kerry, Fianna Fail)
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My question relates to the same issue. What control does the Minister have over retrospective tax demands from Revenue? It seems that people have been audited and paid their taxes, there is no issue of non-compliance and they have made full declarations, but because someone has decided to interpret a patronage share issue differently, a further tax demand is being made. It is impossible for people to conduct business in this way. If the Minister's Department cannot sort it out, who can?

Martin Ferris (Kerry, Sinn Fein)
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This debacle is causing a great deal of confusion. It is mind-boggling, to say the least. Has the Minister assessed the average tax rate on income for farmers in the south west? How will that manifest itself if patronage shares are classified as an income as distinct from an asset? How will it manifest in a return to Revenue in respect of income from such shares if they are taxed on a regular basis compared with capital gains?

Danny Healy-Rae (Kerry, Independent)
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I have asked Questions Nos. 42 and 82. It is clear that the farmers of Kerry who own the shares did nothing wrong. They took advice from their accountants, tax advisers and other professionals. The Revenue official who appeared before our committee at its meeting stated that this situation was new to Revenue. That is why it is only happening now. Many people who have undergone severe tax audits in the past two years were given clear sheets in September and October. Now, they are some of the 400 who have received letters demanding tax. How can this be right?

As to making tax laws retrospectively, does that mean that Revenue could look for taxes back from the tax amnesties that were granted and the urban renewal schemes under which people received tax back in towns and villages because they received lower tax facilities in the past? Surely that could not be right.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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The Deputy has gone way over time. Come on.

Danny Healy-Rae (Kerry, Independent)
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All right.

Eugene Murphy (Roscommon-Galway, Fianna Fail)
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I apologise. The Deputy may want to contribute again, but we must proceed now. I call the Minister. I will give him a few minutes. I am sure that he has got the message about this issue from all of the Deputies.

Michael Noonan (Limerick City, Fine Gael)
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I have a written reply to Deputy Griffin's Question No. 34, so I will read that first, and I will see what I can do with the other issues that have been raised.

I am aware that a number of Deputies have tabled questions for answer today in connection with ongoing Revenue aspect queries relating to patronage shares issued by Kerry Co-op to some of its members. At the outset of the discussions, it is important to note that the Revenue Commissioners are statutorily independent in the exercise of their functions relating to the tax affairs of any individual under tax and customs legislation. That independence has long been recognised and respected by this House as being critical to maintaining the integrity of the taxation system and it forms a key pillar of Revenue's governance framework.

Regarding Deputy Griffin's question, I am advised by the Revenue Commissioners that there has been no change in policy in respect of this matter and that the position being adopted by Revenue is in accordance with long-established taxation principles to the effect that, where consideration is received for services rendered or produce sold, said consideration is subject to taxation as part of the individual's income in the relevant tax year. Accordingly, in the view of Revenue, there is no element of retrospection or change in interpretation.

Where there are different views as to the correct tax treatment of any particular item or transaction, an appeal may be made to the Tax Appeals Commission where the matter will be adjudicated on in the first instance by an Appeal Commissioner. Where the issue relates to a point of law, the matter can be further appealed by either party to the superior courts.

Deputies will be aware that officials of the Revenue Commissioners appeared before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on 7 December and engaged fully with the questions of Members of this House and the Seanad on the issue. I understand that, during that appearance, Revenue committed to facilitate the appeals process should a taxpayer raise an appeal to the independent Tax Appeals Commission. Furthermore, it also confirmed that there would be no action by Revenue in the interim period to seek to collect the tax liability in the assessment raised by it while appeal processes were under way. It is incumbent on the House to allow these legal due processes to take place in accordance with the law.

That was the written answer to Deputy Griffin's question. Down somewhere, buried in that bundle, there are individual answers to the other questions, but since we took them together, it is difficult to search them out now. From memory, the Minister for Finance has no function in the matter. It is a function of Revenue to assess people for taxes and to collect those taxes. There is no political crossover.

As to retrospection, self-employed people pay tax on the basis of self-assessment. If that self-assessment does not reveal the full level of income as Revenue perceives it, Revenue goes back. There is no retrospection. This is not a charge imposed by Revenue in the first instance, rather, it is self-assessment. The Deputies know the circumstances in this case. Shares were allowed at a discount in proportion to the amount of milk being supplied by individual suppliers to Kerry Group. I believe that it was €1.25 per share for 1,000 gallons or litres of milk. Revenue, in its look-back, deemed that to be another way of farmers being compensated for their supply of milk in addition to the price that they got for the litres. I am only telling the Deputies what is Revenue's position. I know that they Deputies have a different view.

Consequently, Revenue has decided that there may be an income tax liability in respect of the fact that the shares were given at a discounted rate. There may also be a capital gains tax liability. There is a grey market in these shares and it is not difficult to establish what is their value on the market. Capital gains tax applies to the gain between the acquisition price of an asset and its selling price. However, it is difficult to say when individual cases are examined whether people will have an additional liability or a rebate. I will cite an example.

Additional information not given on the floor of the House

Question No. 36 would appear to suggest that Revenue should, or indeed could, analyse a transaction and select a tax treatment based on the maximum potential yield for the Exchequer. This is most certainly not the case as the Oireachtas sets out in legislation the relevant tax treatment that should be applicable to various sources of income or gains.

The Revenue Commissioners are a statutorily independent body charged with collecting the taxes lawfully owing to the Exchequer, and they do so in accordance with the legislation enacted by these Houses of the Oireachtas. The Revenue Commissioners interpret the underpinning legislation and are charged with application of that law equally to ensure fair treatment of all taxpayers.

I again reiterate that I have been advised by Revenue that there has been no change in policy in relation to this matter and the position being adopted by Revenue is in accordance with long-established taxation principles that consideration received that is directly related to produce sold, whether in the form of cash or shares, is subject to taxation as income.

As there has been no change in policy by the Revenue Commissioners, I do not see the benefit of providing a tax yield impact analysis as sought by the Deputy. Such calculations are normally completed where a change of policy is being brought forward by Government and the associated estimated cost or yield is calculated in order to inform the Oireachtas in respect of the impact on the Exchequer of such a policy change. Such costings help to inform the associated debates in these Houses. In this case, however, the position is that the Revenue Commissioners are interpreting and implementing tax law as it stands and there has been no departure from existing policy and interpretation.

Depending on the particular circumstances and incomes of each taxpayer involved, the setting out of this tax treatment by the Revenue Commissioners could result in additional taxes being due, or indeed in a reduced tax burden for some. Calculation of a tax yield impact analysis in such a scenario would be difficult and, as outlined previously, unwarranted given the position of the Revenue Commissioners that there has been no change in practice on their part in terms of the appropriate tax treatment of such income.

As Deputy Brassil will be aware, the taxation of business profits is governed by a self-assessment regime. The general principles of self-assessment include persons submitting their tax returns in time, making a self-assessment of their tax liabilities and paying those tax liabilities in time without intervention by, or request from, Revenue. As the Deputy will also be aware, the main oversights of the self-assessment tax regime include the range of legislative provisions and the various compliance interventions that Revenue have in place to ensure that persons have paid the correct tax due to the Exchequer and in time.

I am informed by Revenue that a main aspect of their compliance interventions is to ensure that self-assessment taxpayers have not underdeclared a source of income or omitted a source of income from their tax returns. The type of compliance intervention initiated by Revenue is guided by the nature of the risks identified. Each Revenue intervention is intended to be in the form that is most efficient in terms of time and resources and imposes the least cost on the taxpayer while addressing the perceived risk. Consequently, not all Revenue interventions take the form of a formal Revenue audit.

I am further informed by Revenue that, from time to time, certain matters come to its attention that indicate that a person, or a cohort of persons, may have incorrectly claimed an allowance, relief or credit or may have omitted to declare a source of income. In such cases, those persons may be asked to reconsider his or her tax positions for a relevant tax year or accounting period and to consider availing of the benefits of making qualifying disclosure to Revenue.

There are, of course, occasions where there may be differences of opinion as between a person and Revenue as to the amount of tax that person is liable to pay. Where such differences occur on receipt of an assessment from Revenue, the person can, within 30 days of receiving that assessment, lodge an appeal to the Tax Appeals Commission, which adjudicates on tax assessments. I might add that the Tax Appeals Commission is a statutory body that is independent of the Revenue Commissioners.

As to the Deputy's questions as regard the controls that my Department has in place as regards the collection and audit functions of Revenue, I am informed by my officials that no such controls are in place, nor would it be appropriate to have such controls due to the independence of Revenue in carrying out their functions.

Regarding Question No. 39, a taxpayer's average effective rate of income tax is the average rate of tax he or she pays on his or her income as a whole in any tax year. Due to the nature of the Irish tax system, incorporating tax credits and standard rate bands, this effective rate varies from person to person depending on income and personal circumstances. For example, low-income individuals can have a zero or very low effective tax rate where their income is largely sheltered from tax by personal tax credits, whereas individuals with higher incomes paying tax at the higher rate would have higher average effective rates of tax.

What may be of more relevance is the marginal rate of tax, which is the rate of tax paid on any additional income received by a taxpayer in a given tax year. Again, this would vary from person to person based on individual circumstances.

In the most recent analysis conducted by Revenue in respect of the farming sector, published in July 2016, there was no specific analysis of the average effective rate of tax. However, the analysis provided a breakdown of the average farming income by county. For the counties of Cork, Kerry and Limerick, the average farm income, being the net farming profit subject to income tax, was €32,398, €20,851 and €27,268, respectively. This report is available on Revenue's website, at the link set out in this response.

I have been informed by Revenue that the average value received by farmers in respect of patronage shares in the years 2011 to 2013 was between €3,510 and €4,860. Based on these figures and the average farm incomes listed above, it is possible that the marginal rate of tax on this additional income may be the standard rate of tax for many farmers. Farmers whose other income in the relevant year has already exceeded their standard rate bands would be liable to income tax at the higher rate of tax.

Deputy Ferris's question would appear to suggest that Revenue should conduct a tax yield analysis and use this to decide the tax treatment which should apply to a given transaction. As I already stated, this is neither possible nor, as I am sure the Deputies would agree, desirable. Revenue's role is to collect the taxes lawfully owing to the Exchequer, in accordance with the legislation enacted by these Houses. www.revenue.ie/en/about/publications/farming-profile-2016.pdf

The issue raised in Question No. 42 relates to Revenue's tax treatment of patronage shares issued by Kerry Co-op to certain of its members. Deputies will be aware that Revenue has committed to facilitate the appeals process should a taxpayer raise an appeal to the independent Tax Appeals Commission in relation to this issue.

Regarding share-based remuneration schemes, in general, employees are subject to income tax on share issues where the employer issues such shares and charges the employee less than the market value for them. Income tax is due on the difference in the relevant values and is generally collected via the PAYE system, while income tax due on share options must be returned within 30 days of the exercise of such options. In certain cases the relevant shares may be subject to a clog, restricting the employee from selling such shares for a set period of time. However, notwithstanding this restriction on sale, any income tax due is payable at the time of the share award.

A more favourable treatment may apply under certain Revenue approved share schemes, but such schemes are subject to a range of restrictions, and are used primarily by larger, quoted companies. Deputies will be aware that in budget 2017, I announced my intention to introduce a new, SME-focused share-based remuneration incentive in budget 2018. This is a complex undertaking, as a focused scheme of this nature will need to comply with state aid regulations and is likely to require EU approval. Therefore, in the years in which the patronage scheme was active, employees who received share based remuneration in an SME company would in most cases have been subject to income tax on any value received at the outset, regardless of when the shares were sold.

As such, there would not appear to be a policy rationale to legislate for different treatment specifically for patronage shares in those years. Furthermore, an amendment of the nature proposed by the Deputy would be retrospective, in that it would change the tax treatment of transactions occurring in the years 2011 to 2013. Retrospective changes undermine the certainty of the tax system for all taxpayers and can be subject to constitutional challenge in the courts, and as such I do not believe it would be appropriate in this instance.

Question No. 59 would appear to suggest that Revenue should, or indeed could, analyse a transaction and select a tax treatment based on the maximum potential yield for the Exchequer. This is most certainly not the case. It would also be unfair to taxpayers in the event that they ended up paying more to the Exchequer than actually required by the law.

The Revenue Commissioners, as I said already, are a statutorily independent body, charged with collecting the taxes lawfully owing to the Exchequer, and they do so in accordance with the legislation enacted by these Houses of the Oireachtas.

The deployment of Revenue resources is a matter entirely for Revenue. I again reiterate that I have been advised by Revenue that the position being adopted by Revenue is in accordance with long-established taxation principles that consideration received which is directly related to produce sold, whether in the form of cash or shares, is subject to taxation as income. In this case, the Revenue Commissioners are interpreting and implementing tax law as it stands and they have assured me that there has been no departure from existing policy and interpretation.

Where there are different views as to the correct tax treatment of any particular item or transaction an appeal may be made to the Tax Appeal Commission where the matter will be adjudicated on, in the first instance, by an Appeal Commissioner. Where the issue relates to a point of law the matter can be further appealed, by either party, to the superior courts.

Deputies will be aware that officials of the Revenue Commissioners appeared before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on 7 December last, and engaged fully with the questions of Members of both this House and the Seanad on this issue. I understand that, during that appearance, Revenue committed to facilitate the appeals process should a taxpayer raise an appeal to the independent Tax Appeals Commission. Furthermore, Revenue also confirmed that there would be no action by Revenue in the interim period to seek to collect the tax liability in the assessment raised by Revenue while appeal processes are under way. It is incumbent on this House to allow these legal due processes to take place in accordance with the law.

The issue raised in Question No. 74 relates to Revenue's treatment of patronage shares issued by Kerry Co-op to certain of its members. I am advised by Revenue that the position adopted is in accordance with long established taxation principles that, where consideration is received for produce sold, that consideration is subject to taxation as part of the individual's income.

Regarding share-based remuneration schemes, in general, employees are subject to income tax on share issues where the employer issues such shares and charges the employee less than the market value for them. Income tax is due on the difference in the relevant values and is generally collected via the PAYE system, while income tax due on share options must be returned within 30 days of the exercise of such options. In certain cases the relevant shares may be subject to a clog, restricting the employee from selling such shares for a set period of time. However, notwithstanding this restriction on sale, any income tax due is payable at the time of the share award.

A more favourable treatment may apply under certain Revenue approved share schemes, but such schemes are subject to a range of restrictions and are used primarily by larger, quoted companies. Deputies will be aware that, in budget 2017, I announced my intention to introduce a new, SME-focused share-based remuneration incentive in budget 2018. This is a complex undertaking, as a focused scheme of this nature will need to comply with state aid regulations and is likely to require EU approval.

Therefore, in the years in which the patronage scheme was active, employees who received share awards or the right to acquire shares at a discount in an SME company would in most cases have been subject to income tax on any value received. As such, there would not appear to be a policy rationale to legislate for different treatment specifically for patronage shares in those years. Furthermore, an amendment of the nature proposed by the Deputy would be retrospective, in that it would change the tax treatment of transactions occurring in the years 2011 to 2013. Retrospective changes undermine the certainty of the tax system for all taxpayers and can be subject to constitutional challenge in the courts, and I do not believe it would be appropriate in this instance.

I understand that Question No. 82 relates to the ongoing Revenue aspect queries relating to patronage shares issued by Kerry Co-op to some of its members. In this context I again note that the Revenue Commissioners are statutorily independent in the exercise of their functions relating to the tax affairs of any individual under tax and customs legislation. That independence has long been recognised and respected by this House as being critical to maintaining the integrity of the taxation system, and it forms a key pillar of Revenue's governance framework.

With regard to Deputy Danny Healy-Rae's question, I am advised by the Revenue Commissioners that there has been no change in policy in respect of this matter, and the position being adopted by Revenue is in accordance with long established taxation principles that, where consideration is received for services rendered or produce sold, that consideration is subject to taxation as part of the individual's income in the relevant tax year. Accordingly, in the view of Revenue, there is no element of retrospection or change in interpretation.

Where there are different views as to the correct tax treatment of any particular item or transaction an appeal may be made to the Tax Appeals Commission where the matter will be adjudicated on, in the first instance, by an Appeal Commissioner. Where the issue relates to a point of law the matter can be further appealed, by either party, to the superior courts.

Deputy Danny Healy-Rae will be aware that officials of the Revenue Commissioners appeared before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on 7 December last and engaged fully with the questions of Members of both this House and the Seanad on this issue. I understand that, during that appearance, Revenue committed to facilitate the appeals process should a taxpayer raise an appeal to the independent Tax Appeals Commission. Furthermore, Revenue also confirmed that there would be no action by Revenue in the interim period to seek to collect the tax liability in the assessment raised by Revenue while appeal processes are under way.

It is incumbent on this House to allow these legal due processes to take place in accordance with the law.

If they get a discounted rate of €1, the real value of it is €10 and they sell it at €15, then from a capital gains point of view they should, in theory, be paying tax on €14 but if they have already paid income tax on €9, one can see how the difficulty arises. There is a difficult piece of arithmetic. I think the best way to proceed is as the Revenue Commissioners suggested when they met the finance committee, namely, put a test case to the Appeal Commissioners and let the test case run. Revenue has committed that it will not move to collect tax from anybody until the test case is conducted and it will facilitate the Appeal Commissioners.

We must remember the Appeal Commissioners are independent. One cannot tell them how to proceed with the case. All we know is that Revenue will give them, neutrally, all the information they require to make a decision and then we will see where it lands after that. Otherwise, we are going around in a circle speculating. What I have in my brief is that if a test case is taken, it will be pursued until there is an adjudication, and in the meantime there will be no attempt to collect. The assessment so far is in respect of the shares offered in 2011 and there may be liabilities in 2012 and 2013 but Revenue is not moving into that space yet. I will take any supplementary questions that might arise.

Brendan Griffin (Kerry, Fine Gael)
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I thank the Minister for agreeing to group the questions. I fully appreciate the separation that must exist between him as Minister for Finance and the Revenue. My concern is that the current tax law on the matter is having unintended consequences and the Minister or the Department must intervene. People have been audited and they have been told by Revenue that all matters are kosher but a few years' later they get a letter out of the blue from Revenue demanding in some cases five figure sums. That is devastating for many people and it is very unfair on the taxpayers concerned. Will the Minister review the legislation governing this entire area because there is a potential long-term loss to the State as a result of the current Revenue interpretation, but in the meantime there is significant loss to the individual farmers involved which is most regrettable and undesirable and is something that could be avoided?

John Brassil (Kerry, Fianna Fail)
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I wish to concentrate on a couple of points raised by the Minister. He mentioned the test case and we are all in agreement on that as the way forward in the hope of finding a resolution. He also said there would be no demands until the test case is concluded. I was contacted by a shareholder yesterday. I put a question to Mr. Phelan from the Revenue Commissioners when he attended the finance committee on whether there would be any consequences such as the issuing of tax clearance certificates for previous years and we were assured there would not be. The individual who contacted me yesterday was due a VAT repayment of more than €2,000 but it was not paid. The only explanation he could find was that it was put against the money the Revenue Commissioners claim he owes on the preference share issue. That seems to go completely against what was outlined at the meeting, despite an assurance from Mr. Phelan that the issue would be dealt with separately.

Issues arose in the previous ten minutes about vulture funds not paying tax and treating people unfairly. We are talking in this case about compliant taxpayers, and we must defend them and treat them fairly. This is not right and we need to address the issue. I accept what the Minister for Finance said about the issue requiring to be addressed independently of him but we must also have some control.

Michael Healy-Rae (Kerry, Independent)
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There would be outrage if any other taxpayer was treated in the same way as the members of the farming community have been treated. They are tax compliant. They had professional accountants doing their books for them and they made their returns in a perfectly honest and open way but now Revenue is retrospectively going back and changing the rules. Revenue is doing the one thing we were always told in life that one cannot do, namely, moving the goalposts in the middle of the game. That is what has been done to those people. I believe it is wrong and that it should be proven to be wrong. If a person driving a bus or taxi or doing work in any walk of life made his or her returns and he or she was then told that Revenue was changing the rules, there would be outrage. We cannot treat farmers in that way. It is wrong and the Minister should intervene.

Martin Ferris (Kerry, Sinn Fein)
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The Minister is undermining a precedent that has been set, namely, that in the past anybody who had patronage shares and decided to sell them paid capital gains tax at 33%. Now, notwithstanding the outcome of the test case, Revenue is assessing the shares as income. In addition, there is the possibility of double taxation regarding capital gains tax. The situation is a shambles. If the decision of the Appeal Commissioners is in favour of what Revenue is trying to do, the issue will end up going through the courts. I have sympathy for people who are tax compliant and believe themselves to be so, who have paid capital gains tax on the sale of some of their shares, yet the beneficiaries of such shares could face another penalty. It is a very bad signal to send out, particularly in light of what the farming community is trying to do and its contribution to the economy in general.

Danny Healy-Rae (Kerry, Independent)
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I wish to clarify one point for the Minister in terms of my understanding of the issue. Farmers were awarded the shares per thousand gallons of milk quota but it was not payment for the milk. The shares were awarded as part of a goodwill gesture. However, if a farmer falls out with the co-op, he or she will be made to take €1.25 per share and the shares will be taken from him or her. If the farmer had paid tax on the shares when he or she received them, will Revenue then give the farmer the tax that was taken off him or her previously when he or she first got the shares? I expect farmers would have an awful job trying to get it back.

If we have a role to play as elected representatives and the Minister has a role to play, then surely fair play must be meted out. If Revenue wins the test case we must ensure that the farmers or those who own the shares will not have to pay retrospectively because, in the words of the Revenue official, this was a new departure for it. We must introduce a law to ensure there will not be retrospective charges.

Michael Noonan (Limerick City, Fine Gael)
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I thank all the Deputies for their contributions. I know there are points concerning this issue that are arguable and that is why I am following the Revenue advice and saying this should be appealed on a test case basis to see where the law lies. I know Members have very strongly held views and that is also the case for the constituents whom they represent. However, as I said to Deputy Griffin, the way Revenue operates and has always operated, is in accordance with a long-established taxation principle that where consideration is received for services rendered or produce sold, that consideration is subject to taxation as part of an individual's income.

In other words, regardless of whether one is paid in cash or in kind, one has a tax liability if one is paid in kind in lieu of cash. That is the principle and that has always been the case. If one is paid in kind instead of cash, one is liable for tax on the monetary value of whatever the payment in kind is. Revenue now deems that discounted shares were payment in kind for each 1,000 litres of milk. That is the case it is making. That should be tested, and it is well worth testing it, but Revenue is not changing the law or its practice. It is doing what it does with every taxpayer. It is applying the law.

Farmers got their accounts done by their professional advisers and sent in their tax returns in the normal way. There was no reference to shares being got at a discounted rate so their tax returns are accepted. It has come to the notice of Revenue that Kerry Co-op, in particular, had this discounted share system and in Revenue's opinion, a tax liability arises. A number of people have asked what the position is if they already paid tax. I think the Deputy asked about the incomes. I will send them out to him and he will get them in a written answer. On average, Cork farmers are slightly north of €30,000, Kerry farmers are slightly ahead of €20,000 and Limerick farmers are around €27,000 - somewhere in the high 20s. All those would be subject to the standard rate of tax, which is 20%. All of them would also be subject to PRSI payments and USC so their effective rate would be somewhere around 29% but where the capital gains tax is 33%. On that part of the gain which was contributed by the discount, some farmers subject to the standard of tax have actually paid too much tax if they sold the shares because they have paid a rate at 33% when the maximum they should have paid on income tax was 29%. Each individual taxpayer has to be assessed on this and it is complex but the best way to go is to take the test case and let it go after that. I have been involved with this since the start. It was brought to my attention by several Deputies. I got my officials to inquire into it and I am meeting the chairman of Revenue before the end of the month and will raise this issue again, even though it is not the primary purpose of the meeting.

In respect of suggestions that there is some kind of discrimination against farmers, there is no discrimination. This is the way tax law applies. I have been very sympathetic, as Deputies know, to the farmer taxation system and have introduced amendments to reform farm tax in a very fundamental way over the past four or five years. Someone can average income over five years, a change we introduced two years ago. This year, we introduced an extra year because this was a very poor year for farming with very little profit. There is now a sixth year which someone can use as an opt-out year on income averaging and only pay whatever tax liability there is for that individual year. If, by definition, there was hardly any income at all, one would not have a tax liability on it.

With the Leas-Cheann Comhairle's patience, I want to check my notes. In respect of the point made by Deputy Ferris, there is no taxation. I think I have dealt with that. Deputy Michael Healy-Rae spoke about the incomes of different farmers and a change of rules. Deputy Brassil spoke about an individual who had a VAT repayment held back which he thinks may be because he is not compliant on this. That should be raised directly with the Office of the Revenue Commissioners. If the Deputy sends me an e-mail about it, I will raise it with the Office of the Revenue Commissioners. The Deputy should give me the individual's name, address and tax number and it will be done confidentially. I can transfer it to Revenue and make sure the Deputy gets a written reply because I do not know what the circumstances are. That is the situation. My strong advice is to get the co-operative in co-operation with the individuals involved or somebody to take a test case to the Tax Appeals Commission and we will see where it lands after that.

Pat Gallagher (Donegal, Fianna Fail)
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Question No. 35 is in the name of Deputy Howlin who submitted a request to have his question taken by Deputy Burton.