Kerry milk suppliers are this week trying to get to grips with a completely new tax bill that could have far-reaching consequences also for other co-op shareholders nationally. For the first time, Revenue has requested the value of patronage shares be classed as trading income in the year of receipt and taxed accordingly. Numerous Kerry milk suppliers have reported receiving the letters in the past few days, with tax bills ranging from €5,000 to €50,000 to be paid in the coming weeks. Over the period 2011 to 2013, about 600,000 patronage shares were issued to Kerry milk suppliers.
Kerry milk suppliers are this week trying to get to grips with a completely new tax bill that could have far-reaching consequences also for other co-op shareholders nationally. For the first time, Revenue has requested the value of patronage shares be classed as trading income in the year of receipt and taxed accordingly.
Numerous Kerry milk suppliers have reported receiving the letters in the past few days, with tax bills ranging from €5,000 to €50,000 to be paid in the coming weeks. Over the period 2011 to 2013, about 600,000 patronage shares were issued to Kerry milk suppliers.
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 patronage shares received, and giving an opportunity to come forward now and pay any income tax due in this matter.”
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Revenue has written to suppliers suggesting that these shares were worth between €65/share and €90/share. During the period in question, all suppliers would have purchased the shares at nominal value which was €1.25/share.
How do you value a co-op share?
This is a contentious issue. The assets backing the shares released years ago might be worth multiples of that. However, when Kerry and Avonmore PLCs went to the courts to realise the commercial value of their shareholding in the Irish Dairy Board Co-op, the court ruled that the shares were to be at the original nominal value of £1.
Where did €12m bill come from?
If we assume an average value of €80 over 600,000 shares as per the Revenue correspondence this week, then the assumed net value of these is around €48m. Assuming the average tax rate per supplier is paid at the standard rate of 23%, then the tax bill owed by Kerry suppliers is around €12m or €3,400 per supplier assuming 3,500 suppliers will be liable.
Of course, averages cover up a lot and you could safely assume 1,000 suppliers will not be liable for any tax, so straight away the average bill per supplier moves to €4,800/farm. After that then you will have much bigger quota sizes, which will incur much larger tax bills up to and over €50,000 per supplier.
What are patronage shares?
Kerry ran a share patronage scheme which started in the year 2000 and ended in 2013. This allocated active milk suppliers one new co-op share for every 1,000 gallons of milk supplied annually in the later years, but started off at one share per 500 gallons supplied initially. Its aim was to enable active members to increase their co-op holding relative to retired members.
Why only 400 letters?
These 400 letters only represent a subset of the 3,500 active suppliers (from Kerry, Clare, Galway, Tipperary and Limerick mainly) that would have received patronage shares during that period. Some sources suggest that only the larger suppliers have received letters to date.
Will more farmers get letters?
Revenue declined to say 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.
What did farmers do with patronage shares?
Many farmers have held on to the shares rather than converted 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.
What happens if you do not comply with Revenue?
Assuming individuals don’t engage with Revenue then you will not get a tax clearance certificate and hence you will not be eligible for higher education grants, TAMS grants, etc.
More than Kerry Co-op shareholders liable?
Revenue has confirmed that co-op members outside of Kerry could potentially be hit with fresh income tax bills as a result of Kerry investigation. Revenue said: “A particular scheme has involved the issuing by the co-operative of shares to members arising from the trading relationship between the member and the co-operative (or a nominated purchaser). Where the number of shares issued is based on and dependent on the level of business between the member and the co-operative or the nominated purchaser, and where the co-operative does not receive the market price for the shares issued, it is considered that the profit accruing to the member, the difference between the market value of the shares issued and the price paid for these shares, is a trading receipt of the relevant business of the member.”
Read more
How much is a Kerry Co-op share worth?
Listen: Ballybunion reacts to revenue letters
Legal query: significant tax bill for Kerry milk suppliers
How Revenue came to apply income tax to Kerry shares
Kerry shares put political ball in Government's court
Editorial: Kerry needs to protect individual farmers
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