Stud-farm owners declared gross profit of some €17 million in 2004 from stallion stud fees which is exempt from tax under the Government's controversial tax breaks for stallion owners, according to information given to the Dáil this week by Minister for Finance Brian Cowen.
This figure would correspond to a maximum cost of some €7 million to the Exchequer in income tax and corporation tax forgone, Mr Cowen said.
It is not yet possible to calculate the precise level of tax forgone as a result of the scheme for two reasons. First, the profits claimed from stud fees, paid every time a stallion impregnates a mare, could be considerably higher as not all tax returns have been processed by the Revenue Commissioners.
On the other hand legitimate business expenses have not been deducted from the €17 million gross profit figure calculated so far, and the full amount would therefore not be exposed to tax.
However, the figures given by Mr Cowen in response to a Dáil question from the Labour Party indicate the tax forgone is considerably higher than the estimate of €3 million in lost tax for the scheme that was given in the 2004 report from economic consultants Indecon. That report was commissioned by the breeding industry as part of its campaign to retain the tax breaks.
Until now the value of the tax break, introduced by former taoiseach Charles Haughey in 1969, was unknown. While the scheme was brought in prior to Ireland's joining the EU, it was extended in 1986 to include "offshore stallions".
The change meant that stud fees were tax-free if the stallion involved was sent abroad for a period to cover mares, mainly to the southern hemisphere.
In these circumstances the Revenue Commissioners continued to regard the stallion as "ordinarily kept on land in the State" for tax purposes, even during its absence from the country.
Until a change in the 2003 Finance Act, stallion owners had not been required to make returns to the Revenue. The 2003 change meant personal tax returns filed in October and November last and, in the case of companies, corporation tax returns filed up to the end of 2005, had to include information on stallion stud claims.
"While a significant proportion of these returns have now been processed, not all have," Mr Cowen said in his reply.
The tax break has led to differences between the Government and Brussels after a complaint led to the European Commission investigating and ruling that the scheme amounted to illegal state aid.
Mr Cowen announced in the Budget that the stud fee tax break is to be scrapped from July 31st, 2008, and replaced with a "new regime" to be discussed with the European Commission.
According to Labour finance spokeswoman Joan Burton, the profits claimed as tax-free could be much higher, depending on whether returns from some of the major stud operations had been analysed. She said her party had been seeking to find out who was benefiting and what the scheme was costing for five years.
"We still don't even know how many returns have been made and how many have been assessed. Clearly the figures involved would indicate it is at least double the assessment given in the Indecon report," she said.