Dairygold boss Jim Woulfe and his board have in recent weeks been considering what to do with the pool of bonus shares it retained on behalf of members because of concerns about how the dreaded taxman would treat the shares if distributed.

Under the co-op’s current Loyalty Reward Scheme, milk suppliers qualify for bonus shares based on purchases of inputs and also on kilograms of milk solids supplied each year, starting in 2016. Grain growers also qualify.

Patronage shares

But in late 2016 Revenue threw a spanner in the works when it came looking for income tax, PRSI and USC from Kerry Co-op members on their patronage shares.

Since 2016, Dairygold has allocated €2.5m in bonus shares and held them on behalf of its qualifying farmers. But it decided not to distribute the bonus shares and instead hoped for clarity on Revenue’s tax demand which has been contested by Kerry Co-op. This was all done with the approval of Dairygold members at its annual general meetings.

Dairygold suppliers are now almost due the third year’s bonus shares, for 2018. However, the appeal by Kerry Co-op to the Tax Appeals Commission has not yet received a verdict and there is no indication of when this will come.

Dairygold chair John O’Gorman and his board are trying to resolve the issue in the most tax-efficient manner for farmers.

Decision

The Dealer understands they favour going ahead and distributing the bonus shares and letting each farmer sort it out on his or her own with the taxman. They are likely to make a decision on the matter and make a recommendation one way or other at next month’s annual general meeting.

The other big co-ops have avoided any possible tangling with Revenue by scrapping bonus and patronage shares and concentrating on bonus payments – in hard cash – or discounts on inputs.

For example, Martin Keane and Siobhan Talbot at Glanbia Co-op have been busy reminding members that its milk supplier members qualified for an average trading bonus payment of €2,850 last year and that the scheme runs again for 2019.

Hard cash might now look more tempting to Dairygold suppliers, too.

Revenue has recently invited applicants to join a panel of experts to advise it on the valuation of unquoted shares, so unfortunately the issue doesn’t look like it’s going away.