European Agriculture Commissioner Marian Fisher Boel met representatives of the Irish bloodstock industry in Brussels yesterday but maintained her opposition to the tax exemption on stud fees.
The commissioner also revealed that she had initiated a wider investigation into the European bloodstock industry to discover if other state aids exist that could distort competition within the EU.
It is understood the agriculture commission has sent letters to several other EU governments as a first stage of this wider EU inquiry. No responses have yet been received by the commission.
Ms Boel, who has already met Minister for Finance Brian Cowen and the Minister for Agriculture Mary Coughlan on the issue, spent an hour talking to officials from the Irish Thoroughbred Breeders' Association (ITBA).
She has already told the Government that its tax exemption on stud fees is an illegal state aid that could distort competition within the European Union.
The meeting in Brussels was the commissioner's first with representatives of the Irish bloodstock industry, who are staunchly opposed to the removal of the tax breaks available on stud fees.
ITBA chairman Dermot Cantillon said the group had argued that the stallion tax exemption should be authorised, even if it was declared a state aid.
"There is no evidence that the scheme distorts or threatens to distort competition in the EU," said Mr Cantillon, who warned that the future of 16,500 jobs in the industry in the Republic would be at risk if the tax exemption was removed.
The ITBA also lobbied Commissioner Boel to delay its investigation into the Irish horse breeding industry until it had concluded its EU-wide investigation. This would ensure that Irish breeders were not at a disadvantage to other breeders in Europe, said Mr Cantillon, in a briefing with the media after the meeting with Ms Boel.
It is understood the proposal was rejected by Commissioner Boel.
A spokesman for the commission said the meeting was very constructive and both sides had given their views.
However, he said the commission believed that the tax system in place in Ireland was against state aid rules and would have to change.
Mr Cowen wrote to the commissioner last week confirming the Government would address the issue in the December budget.
It is understood the Minister will propose replacing the current tax-free status for stud fees with generous tax allowances.
The industry has claimed that the status, introduced in the late 1960s, has led to Ireland becoming a world leader in racehorse breeding.