Legal query: significant tax bill for Kerry milk suppliers

“I have recently been contacted by Revenue advising me that I have a significant income tax bill arising from my Kerry shares. This is a shock to me given that I have always paid whatever tax my accountant told me was due and also the fact that I simply do not have the money they say is owed. Are there others in my situation?”

I have had a number of calls from farmers alarmed by recent correspondence they have received from Revenue advising them of a potential under-declaration of income.

Revenue’s viewpoint

Revenue says that farmers have been in receipt of patronage shares from Kerry Co-op for a number of years which have not been declared as income. The letter states that as these shares are received by the farmer as a result of being a Kerry Co-op milk supplier and are issued in proportion to the quantity of milk supplied by the farmer, it is Revenue’s position that they need to be included in the farmer’s accounts as additional trading income subject to income tax, USC and PRSI at the appropriate rates based on their market value when received and not par value.

It appears that Revenue has put an estimated value on the shares as follows:

At the Irish Tax Institute branch meeting with Revenue southwest region on 15 October 2015, Revenue noted certain issues in relation to the disposal/transfer of Kerry Co-op shares.

Revenue said it has a database of share values at different times, if advisers need assistance in calculating CGT or CAT arising on a disposal and that Kerry District can be contacted in this regard. It is likely that these values have been derived from the declared values for previous disposals of those shares.

Farmer’s viewpoint

As a self-employed person, a farmer pays income tax under the self-assessment system once a year. Self-assessment means that the farmer is responsible for making his own assessment of tax due, although many depend on the services of an accountant or tax consultant.

I understand that it was widely accepted that shares were valued at par value when received, as referred to in the Revenue letter. Par value is a per-share amount appearing on the share certificate.

The Kerry Co-operative Creameries Limited shares have a par value of €1.25/share, which would be much less than the market value, ie the price they would fetch when sold in the open market, although all such sales are subject to Kerry Co-op board approval.

Tax would normally be collected on the shares on a subsequent disposal whereby Capital Gains Tax currently at 33% would be payable on the difference between the value of the shares when they are received, eg €1.25/share, and the value when sold, eg €65/share.

Revenue assessment

I understand that Revenue has invited farmers to make an unprompted voluntary disclosure under the code of practice for revenue audit and other compliance interventions, thereby minimising potential penalties together with avoiding publication and prosecution if all conditions attaching to making such a disclosure are met.

To make such a disclosure, the farmer is required to respond to Revenue’s letter within 21 days with their computation of the tax liability together with the appropriate payment.

Revenue is in the process of raising assessments advising farmers of the additional tax liabilities.

Appeal procedure

A notice of appeal must be submitted to the Tax Appeals Commission generally within 30 days after the notification of the assessment from Revenue. The appeals commissioners will then inform Revenue that the appeal is lodged.

Revenue will check the validity of the appeal, and notify the appeals commissioners where any issue arises. If the appeal is deemed valid, a statement of case is requested from one or both parties and, once the case is considered by the appeals commissioners, a decision is issued in writing. If the decision is not accepted by both parties, the aggrieved party can either request a judicial review or a case stated for the High Court. If either party is dissatisfied with the decision of the High Court, the decision can be appealed further.

Settlements by agreement

The fact that appeals are to be made directly to the Tax Appeals Commission in the first instance does not preclude the continuation of settlement discussions between Revenue and appellants after an appeal has been made.

Consequently, it may be worth lodging the appeal and continuing to try and settle the matter with Revenue.

Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors does not accept responsibility for errors or omissions. E-mail ameehan@farmersjournal.ie.

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