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Speaking in the Dáil on Tuesday night, Minister Noonan repeatedly stated that there was “no change in policy” when the Revenue sent income tax bills for thousands of euros to Kerry Co-op milk suppliers over the shares they acquired through the co-op’s patronage scheme between 2011 and 2013.
Revenue is not changing the law or its practice
While insisting on the Revenue’s independence from the Government, he supported the tax officials’ view that questioning farmers’ self-assessed tax returns was in line with existing rules, with “no discrimination”. “If that self-assessment does not reveal the full level of income as Revenue perceives it, Revenue goes back. There is no retrospection,” he said. “Revenue is not changing the law or its practice. It is doing what it does with every taxpayer. It is applying the law.”
Minister Noonan also backed the Revenue’s interpretation that patronage shares were payment for milk. “One has a tax liability if one is paid in kind in lieu of cash. That is the principle and has always been the case,” he said.
He acknowledged that the approach adopted by Revenue was “a difficult piece of arithmetic”. Using a fictional example, he added: “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.”
Minister Noonan was answering a series of questions tabled by the five Kerry TDs after a meeting with Kerry Co-op shareholders last week. They brought up the implications of the Revenue’s so-called Kerry project for the Exchequer. Sinn Féin’s Martin Ferris asked about “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 questioned the allocation of Revenue resources to this effort.
No gain to exchequer
The finance minister acknowledged that the recent approach may result in a net loss to the Exchequer. With the average net farm income in Co Kerry at €20,581, and €27,268 in Co Limerick, and the average annual value of patronage shares received by each farmer estimated by Revenue to be between €3,510 and €4,860, many recipients are likely to fall in the 20% tax band. With USC and PRSI included, the tax applicable to the value of their share would be 29%, instead of the 33% capital gains (CGT) or capital acquisitions tax (CAT) currently paid when the shares are transferred.
There was no discussion, however, on the difficulty for farmers to pay immediate income tax on the estimated resale value of shares that they haven’t sold, as opposed to using some of the cash from the sale of shares to pay CGT.
There is a grey market in these shares and it is not difficult to establish what is their value on the market
Minister Noonan also brushed aside the controversial issue of the shares’ valuation. The Irish Farmers Journal recently revealed that the Revenue had based its 2011 claims on the value of just five transactions out of 13,000 shareholders on the tightly controlled “grey” market. Yet the minister said: “There is a grey market in these shares and it is not difficult to establish what is their value on the market.”
With differences evident between the TDs and the minister, and deputy Ferris describing the situation as “a shambles”, Minister Noonan said: “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.” He added that the Revenue had committed not to seek payment of the tax involved until the appeal was heard.
Noonan “involved since the start”
Fianna Fáil TD John Brassil, however, said he was approached by a Kerry Co-op shareholder who said otherwise.
“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.”
Minister Noonan offered to raise this case with the Revenue. He also promised to discuss the patronage shares issue in a meeting with the chair of the Revenue Commissioners this month, adding: “I have been involved with this since the start.”
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