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Numerous farmers have reported receiving the letters this Monday, with tax bills ranging from €5,000 to €50,000. The Irish Farmers Journal understands that farmers are encouraged to pay and file the corresponding tax within weeks to minimise penalties.
In a statement to the Irish Farmers Journal, a spokesperson for the Revenue Commissioners said: “Certain milk suppliers received patronage or free shares in proportion to the quantity of milk supplied to a co-op. Such shares should be included as trading income subject to income tax, USC and PRSI based on their market value when received. Revenue has written to a number of such shareholders advising them of the possible tax liability in relation to the value of free shares received, and giving an opportunity to come forward now and pay any income tax due in this matter.”
Income or capital gain?
However, many farmers have held on to the shares rather than converting them to cash, and not declared them as income. One Kerry supplier told the Irish Farmers Journal that he and other farmers had instead reported the shares as capital gains and paid the corresponding tax.
Kerry ran a share patronage scheme for five years between 2007 and 2013, allocating active milk suppliers one new co-op share for every 1,000 gallons of milk supplied annually. Its aim was to enable active members to increase their co-op holding relative to retired members.
The letter has so far reached those who received shares during the period to 2011 to 2013. It is unclear how this subset was selected. The Revenue declined to communicate the number of farmers issued with the letters on the basis that they are part of normal compliance checks and their number is not finite.
”Out of the blue”
ICMSA President, John Comer, said that his organisation has been receiving many calls from hugely concerned members regarding the “out of the blue” Revenue letters received in a year that has already been tremendously difficult for dairy farmers.
Shareholders say they had received no notification of the impending liability. “The advice for anyone who receives a letter from Revenue, or for anyone who has received such shares, is to engage with us and address the issues raised,” the Revenue spokesperson said.
The Irish Farmers Journal understands that the board of Kerry Co-op will represent milk suppliers in legal discussions starting this Tuesday to understand why this potential tax liability is only now coming to the fore.
The valuation of co-op shares itself is a contentious issue. The assets backing the shares released years ago might be worth multiples of that. However, when Kerry and Avonmore plc went to the courts to realise the commercial value of their shareholding in the Irish Dairy Board co-op, it was ruled that the shares were to be at the original nominal value £1.
The Kerry share issue could have implications for other co-ops that operate patronage share schemes.
Additional reporting by Jack Kennedy.
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