A number of Kerry Co-op suppliers have received letters from Revenue in the last few days advising them that they would get income tax bills in relation to the shares distributed in 2012 and 2013. One farmer told the Irish Farmers Journal that after receiving the letter last week he expects a tax assessment in December.

The move confirms plans unveiled through an Irish Farmers Journal freedom of information request earlier this year, which showed that controversial tax assessments raised for 2011 last year would be followed by more this year.

Four-year rule

A four-year rule means that Revenue officials rushed to issue 2011 tax bills to the 400 farmers who had received the largest number of shares before last year’s deadline. However, minutes from a meeting of Revenue’s so-called “Kerry Co-op project” noted that “any exposures in 2012 and 2013 will be pursued in 2017”.

Officials added that this time they would also review the tax returns of “those who received less than 100 shares in 2012 and 2013”. This means that all 3,500 co-op members who received patronage shares could potentially be hit this year.

Appeal hearing

The letters went out as an appeal mounted by farmers objecting to Revenue’s new approach to patronage shares came before the Tax Appeals Commission in Dublin last Wednesday.

The case of a Kerry supplier was used as a test to determine whether the hundreds of existing tax bills and those to come are valid. The farmer confirmed this to the Irish Farmers Journal, but said he could not be named for legal reasons.

Deloitte accountants supported by IFAC, which has the farmer as a client, were present at the hearing. Solicitors for both parties said that the proceedings were held in camera and could not be reported.

The Irish Farmers Journal understands that both sides defended their case before a tax appeal commissioner, who is now expected to make a determination. There is no date set for this.

While tax appeals routinely take several years, the hearing came relatively quickly and representatives of Kerry suppliers are hoping for a quicker resolution. Kerry co-op chair Mundy Hayes told the Irish Farmers Journal that the process “has to run the course and time lines mean nothing there”.

The Irish Farmers Journal understands that farmers who have appealed last year’s assessment will be allowed to include any new Revenue claims in their existing appeal.

Capital assets or income?

Patronage shares are free shares distributed to suppliers as a loyalty bonus. Kerry Co-op used the scheme until 2013 and farmers routinely declared the shares as capital assets to Revenue, paying taxes on their value when they transferred them through sale or inheritance.

Revenue decided last year that because the shares were linked to the volume of milk supplied, they constituted trading income and were liable to income tax during the year they were received.

Farmers have argued that the shares are not income, as they cannot be traded freely against cash. They have also challenged the valuation calculated by Revenue.

Amy Forde and Jack Kennedy contributed reporting for this story.

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Full coverage: Revenue’s Kerry Co-op project