In statements to the Irish Farmers Journal, the Revenue Commissioners have lifted part of the veil on the logic behind the tax letters sent to hundreds of Kerry co-op shareholders. A key point in the Revenue’s argument is that the number of patronage shares issued to Kerry’s suppliers was in proportion to their milk supply.
Kerry ran its latest share patronage scheme for five years between 2007 and 2013, allocating active milk suppliers one new co-op share for every 1,000 gallons of milk supplied annually. Its aim was to enable active members to increase their co-op holding relative to retired members.
The market value of the shares issued and the price paid for these shares is a trading receipt of the relevant business of the member
“Where the number of shares issued is based on and dependent on the level of business between the member and the co-operative and where the co-operative does not receive the market price for the shares issued, it is considered that the profit accruing to the member, the difference between the market value of the shares issued and the price paid for these shares, is a trading receipt of the relevant business of the member,” the Revenue said.
This means that Revenue essentially regards the shares as payment for the farmers’ milk. As a result, the benefit to the shareholder (the difference between the face value of the share, typically €1.25, and their real value if they were sold) is treated as trading income, much like milk cheques.
“Such shares should be included as trading income subject to income tax, USC and PRSI based on their market value when received,” the Revenue said.
No capital gains tax
The general view among farmers and their accountants until now was that the patronage shares were taxable only when farmers sold them, with the cash windfall liable to capital gains tax (CGT). However, the Revenue rejected this and said: “CGT does not arise. However, in the event that this was paid, credit will be given in the calculation of any income tax liability.”
The letters have so far reached farmers who received shares during the period from 2011 to 2013. The Revenue did not answer questions from the Irish Farmers Journal asking how these taxpayers were selected and how the value of their shares was calculated to estimate their tax liability. The Revenue also declined to communicate the number of farmers issued with the letters on the basis that this is part of normal compliance checks and their number is not finite. External reports put this number at 400 so far.
Anyone who has received such shares is to engage with us
The Revenue did, however, indicate that its campaign would not stop at the recipients of the latest letters, or even at Kerry co-op shareholders: “The advice to taxpayers who have received a letter from Revenue, or anyone who has received such shares, is to engage with us and address the issues raised,” its statement said.