The Revenue Commissioners declined a request from Fine Gael Senator Kieran O’Donnell – supported by several Kerry and Limerick TDs – to freeze the process initiated last month to submit Kerry co-op patronage shares to income tax.
Senator O’Donnell wanted the Revenue to issue the formal tax assessment to only one farmer, to allow a test case to proceed.
It is our intention to raise the assessments for 2011 on the 400 cases to protect the Exchequer in respect of the four-year rule
“It is our intention to raise the assessments for 2011 on the 400 cases to protect the Exchequer in respect of the four-year rule,” said Charlie Phelan, Revenue Commissioners assistant secretary for the southwest region. He argued that where Revenue suspected tax payments were missing, its officers had a statutory obligation to start the recovery process. However, he implied that tax assessments for 2012 and 2013 – the two other years mentioned in initial Revenue letters – could be left aside in the immediate term.
While Phelan said that Revenue would make every effort to facilitate appeals of the assessments before the Tax Appeals Commission, he was in no doubt that farmers had to pay income tax on the market value of patronage shares in the years they received them.
The Revenue Commissioners are 100% absolutely convinced at the highest level in the organisation that this is liable to income tax
“The Revenue Commissioners are 100% absolutely convinced at the highest level in the organisation, that this is liable to income tax,” he said.
The meeting shed some light on the process that led Revenue to first raise the issue in aspect query letters to 400 farmers last month.
“We’ve been looking at this for a year or so – the valuation of shares being disposed of and people paying capital gains tax on them. It’s only then that we became aware of the grey market ... and of each share being issued in exchange for 1,000 gallons of milk,” Phelan said.
Case law dating back to 1904
Paul Walsh, principal officer at Revenue, referred to case law dating back to 1904 establishing that non-cash benefits received in payment for services are liable to income tax at their market value.
Phelan said: “These shares essentially represent a form of payment for the milk supplied by the farmers.”
He also explained how the Revenue had valued the shares using the price of those traded on the grey market in those years. When shares are sold, ‘they go through our system to be stamped. We have a database of valuations’, he said.
Phelan added that Kerry co-op shareholders had received dividends of between €1.50 and €2.99 per share in each of the last five years. “These could not have been paid from a share valued at €1.25,” he said.
Fianna Fáil Kerry TD John Brassil questioned the targeting of only some farmers in Revenue’s recent move: “I would argue that these 400 people are not being treated fairly.”
Phelan replied: “All our interventions are based on risk. We took the 400 people who received the largest amount of patronage shares.”
While he agreed that this could appear to be unfair, he added that the tax recovery campaign was in its “very early stage” and said: “In Kerry, 3,400 people received patronage shares. We don’t know about the wider co-op movement.”
60-day engagement period
The meeting ended with Revenue officials accepting to write less aggressive letters to explain the next steps in the process to the 400 farmers involved and to take full advantage of the 60-day engagement period allowed under the Revenue Commissioners’ code of practice. Phelan said: “We will have no collection at all during that period as long as someone comes forward.”
However, he warned that a test case may not be resolved within that time.
The Irish Farmers Journal understands that the next Revenue letters will lift the demand made last month to respond within 21 days "together with the appropriate payment" as the only way of "avoiding publication and prosecution".
While Phelan said that late payment interest is statutory and cannot be reduced, there would be no penalties for taxpayers “acting on professional advice.” He also promised that phased payments would be offered to farmers without the cash to foot large tax bills immediately.
Senator O'Donnell told the Irish Farmers Journal after the meeting that he hoped the combined effects of a more conciliatory approach from Revenue and a test case over a small number of assessment appeals would mean farmers would not have to pay money upfront while waiting from the outcome of the appeals, and would not incur interests or penalties.
Arguments to feed potential appeals
Several TDs and senators advanced arguments that could be used in an appeal against Revenue’s assessments regarding patronage shares as taxable income at their trading value.
Senator Kieran O’Donnell said that while Kerry suppliers deliver milk to Kerry plc., they received patronage shares in Kerry co-op. “They were paid for milk by the plc and this is a separate transaction,” he argued.Fianna Fáil Kerry TD John Brassil said that farmers who had transferred shares since the patronage scheme started 20 years ago had contacted Revenue about their valuation for capital gains tax purposes when transferring them, for example to family members. He argued that the Revenue was aware of the scheme for a long time and the recent letters amounted to a change of policy.Deputy Brassil pointed out that patronage shares distributed in 2011 were based on 2010 milk and might therefore be excluded on the basis of the four-year rule governing how far back Revenue can go. He added that the basis for distribution of patronage shares was milk quota, not volumes collected.Fine Gael TD for Kerry, Brendan Griffin raised the implications for a range of services accessed by the families involved in the past few years on the basis of their taxable income, including medical cards and college grants. Going back on those benefits could prove extremely unfair. Deputy Brassil also raised the need for farmers to obtain tax clearances and how this issue could affect them through no fault of their own. Read more
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Letter: Kerry Co-op patron shares issue
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Full coverage: Kerry patronage shares
The Revenue Commissioners declined a request from Fine Gael Senator Kieran O’Donnell – supported by several Kerry and Limerick TDs – to freeze the process initiated last month to submit Kerry co-op patronage shares to income tax.
Senator O’Donnell wanted the Revenue to issue the formal tax assessment to only one farmer, to allow a test case to proceed.
It is our intention to raise the assessments for 2011 on the 400 cases to protect the Exchequer in respect of the four-year rule
“It is our intention to raise the assessments for 2011 on the 400 cases to protect the Exchequer in respect of the four-year rule,” said Charlie Phelan, Revenue Commissioners assistant secretary for the southwest region. He argued that where Revenue suspected tax payments were missing, its officers had a statutory obligation to start the recovery process. However, he implied that tax assessments for 2012 and 2013 – the two other years mentioned in initial Revenue letters – could be left aside in the immediate term.
While Phelan said that Revenue would make every effort to facilitate appeals of the assessments before the Tax Appeals Commission, he was in no doubt that farmers had to pay income tax on the market value of patronage shares in the years they received them.
The Revenue Commissioners are 100% absolutely convinced at the highest level in the organisation that this is liable to income tax
“The Revenue Commissioners are 100% absolutely convinced at the highest level in the organisation, that this is liable to income tax,” he said.
The meeting shed some light on the process that led Revenue to first raise the issue in aspect query letters to 400 farmers last month.
“We’ve been looking at this for a year or so – the valuation of shares being disposed of and people paying capital gains tax on them. It’s only then that we became aware of the grey market ... and of each share being issued in exchange for 1,000 gallons of milk,” Phelan said.
Case law dating back to 1904
Paul Walsh, principal officer at Revenue, referred to case law dating back to 1904 establishing that non-cash benefits received in payment for services are liable to income tax at their market value.
Phelan said: “These shares essentially represent a form of payment for the milk supplied by the farmers.”
He also explained how the Revenue had valued the shares using the price of those traded on the grey market in those years. When shares are sold, ‘they go through our system to be stamped. We have a database of valuations’, he said.
Phelan added that Kerry co-op shareholders had received dividends of between €1.50 and €2.99 per share in each of the last five years. “These could not have been paid from a share valued at €1.25,” he said.
Fianna Fáil Kerry TD John Brassil questioned the targeting of only some farmers in Revenue’s recent move: “I would argue that these 400 people are not being treated fairly.”
Phelan replied: “All our interventions are based on risk. We took the 400 people who received the largest amount of patronage shares.”
While he agreed that this could appear to be unfair, he added that the tax recovery campaign was in its “very early stage” and said: “In Kerry, 3,400 people received patronage shares. We don’t know about the wider co-op movement.”
60-day engagement period
The meeting ended with Revenue officials accepting to write less aggressive letters to explain the next steps in the process to the 400 farmers involved and to take full advantage of the 60-day engagement period allowed under the Revenue Commissioners’ code of practice. Phelan said: “We will have no collection at all during that period as long as someone comes forward.”
However, he warned that a test case may not be resolved within that time.
The Irish Farmers Journal understands that the next Revenue letters will lift the demand made last month to respond within 21 days "together with the appropriate payment" as the only way of "avoiding publication and prosecution".
While Phelan said that late payment interest is statutory and cannot be reduced, there would be no penalties for taxpayers “acting on professional advice.” He also promised that phased payments would be offered to farmers without the cash to foot large tax bills immediately.
Senator O'Donnell told the Irish Farmers Journal after the meeting that he hoped the combined effects of a more conciliatory approach from Revenue and a test case over a small number of assessment appeals would mean farmers would not have to pay money upfront while waiting from the outcome of the appeals, and would not incur interests or penalties.
Arguments to feed potential appeals
Several TDs and senators advanced arguments that could be used in an appeal against Revenue’s assessments regarding patronage shares as taxable income at their trading value.
Senator Kieran O’Donnell said that while Kerry suppliers deliver milk to Kerry plc., they received patronage shares in Kerry co-op. “They were paid for milk by the plc and this is a separate transaction,” he argued.Fianna Fáil Kerry TD John Brassil said that farmers who had transferred shares since the patronage scheme started 20 years ago had contacted Revenue about their valuation for capital gains tax purposes when transferring them, for example to family members. He argued that the Revenue was aware of the scheme for a long time and the recent letters amounted to a change of policy.Deputy Brassil pointed out that patronage shares distributed in 2011 were based on 2010 milk and might therefore be excluded on the basis of the four-year rule governing how far back Revenue can go. He added that the basis for distribution of patronage shares was milk quota, not volumes collected.Fine Gael TD for Kerry, Brendan Griffin raised the implications for a range of services accessed by the families involved in the past few years on the basis of their taxable income, including medical cards and college grants. Going back on those benefits could prove extremely unfair. Deputy Brassil also raised the need for farmers to obtain tax clearances and how this issue could affect them through no fault of their own. Read more
Formal Kerry tax bills expected for Christmas
Letter: Kerry Co-op patron shares issue
Kerry farmers advised to appeal Revenue’s stance on shares
Top Revenue official very familiar with Kerry's operations
Comer supports Kerry co-op ‘test case’ against Revenue
Full coverage: Kerry patronage shares
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