Dáil Report: Ireland's controversial stud fee tax exemption scheme appears to be in breach of EU rules, according to the European Commission.
The Minister for Finance, Mr Cowen, told the Dáil the Commission had given the Department a month to reply to its preliminary finding that the scheme "would seem to breach" state aid rules.
In a surprise personal statement to the Dáil, the Minister apologised to the House for stating earlier this week that there had been no communication from the Commission on the tax exemption scheme for horse breeding. He had told Labour's finance spokeswoman, Ms Joan Burton, on Tuesday, that the Commission had not been in contact since last April.
Yesterday he said, however, that he had since been informed that the Commission wrote to the Department on January 6th via Ireland's permanent representation in Brussels, which was the normal route for such communications. His Department had not received the letter when he was answering Dáil finance questions.
"In the letter the Commission Directorate General for Agriculture and Rural Development states that it has come to a preliminary conclusion that the stallion tax exemption would seem to constitute an aid scheme which is not compatible with the Common Market," Mr Cowen said.
He added: "The letter sets out the Commission's reasoning and, against this background, invites Ireland to submit its comments in one month together with any concrete proposals regarding how the scheme in question could be brought in line with Article 7 of the EC treaty."
The Department is examining the issue and will arrange to meet the Commission. "This matter will require taking legal advice. We have sought an extension of the one-month deadline which I believe will be granted."
Mr Cowen regretted the information was not available to him at Question Time. "I apologise for inadvertently not providing the correct information to the House for the reason I have given," he added.
Last July the Commission confirmed it was investigating the State's tax exemption scheme for horse breeding. Agriculture Commissioner Mr Franz Fischler said then that the Commission had concerns about the compatibility of the exemption with state aid rules.
Last year two British MEPs, Prof Sir Neil MacCormick of the Scottish National Party and Liberal Democrat Mr Christopher Huhne, tabled questions to the Commission about the exemption to stud farms for "nomination fees payable when a stallion impregnates a mare. Is this practice not an illegitimate form of state aid to stud farms in Ireland?" they asked.
Last year, in a report on behalf of the Irish Thoroughbred Breeders' Association, economic consultants Indecon stated that the exemptions cost the State €3 million annually in lost tax and that the average stud fee was €8,000.
Mr Cowen said in the Dáil on Tuesday that "we will have to conduct our own examination of the matter based on whatever information we can glean from this year's review. There are all sorts of questions. Of the yearlings which result from all this bloodstock breeding activity, 85 per cent are exported and cost about €140 million. All this money is subject to taxation."
He also told Ms Burton that the State advised the Commission of this relief in 1982 and on a number of occasions since.
