Revenue clarifies patronage shares tax issues to Kerry suppliers
The Revenue Commissioners has issued a second letter to Kerry milk suppliers clarifying matters on the tax issues around Kerry Co-op patronage shares they were in receipt of.
Last month, 400 suppliers received letters from the Revenue with tax demands linked to patronage shares issued to them for the years 2011 to 2013.
In the letter, which is dated December 13 and has been seen by Agriland, it is Revenue’s view that the true market value of the shares received at par is correctly assessable as a trading receipt of each affected farming business and is therefore assessable to income tax, according to the second letter.
It clarified that in the letter issued to suppliers on November 18 it invited farmers to review their tax affairs and to engage with Revenue in addressing any tax liabilities arising from the shares.
Revenue said it will require confirmation from each affected farmer in writing if he or she wishes to designate Kerry Co-op or its agent to represent each farmer should a test appeal case be brought before the Tax Appeals Commission (TAC).
According to the letter, Revenue will now raise an assessment of the shares for the year 2011 and it has deferred, for the moment, assessments for 2012 and 2013. It notes that the Revenue is required to do this even if a test appeal case is brought before the TAC.
“Once you have appealed Revenue’s assessment to the TAC, that will immediately put a halt on any action by Revenue to collect the tax involved and any interest arising.
“That will remain the position until the appeal is determined. Additionally, the matter will not have any negative impact on your entitlement to a Tax Clearance Certificate,” it reads.
Further letters are to be issued to the affected farmers over the coming weeks in relation to the issue.
Second letter sent to Kerry suppliers regarding Kerry Co-op patronage shares
RE: Kerry Co-op Shares received under patronage arrangements.
I refer to my letter of 18th November in relation to the above.
You will be aware that there has been much comment and discussion as regards the issues arising from my letter, including in the media, by the Co-op itself, agents representing certain taxpayers, farming organisations, public representatives and directly by some taxpayers.
In the context of those comments and discussion and consideration of same be Revenue, I thought it would be helpful to clarify some matters that are central to this matter and to set out clearly how Revenue proposes to bring this matter forward from here.
- On the tax technical issue itself as regard the patronage shares in question and liability to income tax, Revenue’s view is that the true market value of the shares received at par is correctly assessable as a trading receipt of your farming business and is therefore assessable to income tax. The shares essentially represent a form of payment received for the milk supplied by you and therefore the value of the shares forms part of your trading income for the relevant years.
- My letter of 18th November sought to bring to your attention, Revenue’s position as regards the tax technical issue on the share value and the consequent liability to income tax, and therefore the potential under declaration of income and associated tax liability arising, that could arise for you. In summary, in the event that the income was not included as a trading receipt in your account for the years in question (2011, 2012 and 2013), a tax liability would arise at the marginal rate of tax applicable to you. It was in that context that my letter invited you to review your tax affairs and to engage with Revenue in addressing any tax liabilities arising.
- As regards the valuations applied by Revenue ad reflected in my letter of 18th November, while the patronage shares in question are not quoted, the shares command a significant price when sold privately on the grey market. During the initial enquiries by Revenue into the disposal of co-op shares, Revenue compiled a database of valuations based on the prices at which shares were sold or transferred on the grey market between unconnected third parties. The valuations used by Revenue are based on the average price at which the shares traded on the grey market over the relevant years. Revenue is satisfied that the valuations used represent the open market valuation of the shares during the relevant years.
- It has been suggested in the context of a test case that Kerry Co-op or its agents would coordinate the engagement with Revenue. Revenue’s position on this matter is that the issue is one in the first instance for each farmer, together with his or her designated tax agent. Revenue has no difficulty dealing with a single agent on behalf of all or a group of affected farmers but Revenue would, having regard to our obligations and commitments as regards the confidentiality of your personal tax affairs, require confirmation from you in writing to the effect that you wish to designate Kerry Co-op or its agent to represent you in this matter.
Thank you for the engagement with Revenue to date on this matter. I have extended the timeframe for the engagement to 28th February 2017. This gives you time to complete the engagement including as necessary any submission or additional submission you may want to make, and if you believe that you have a tax liability to consider what your proposal or additional proposal you may want to make as regards any payment arrangement, having regard to your financial circumstances.
In the meantime, and without prejudice to your ability to challenge Revenue’s view as regards valuation of the shares and related liability to income tax, Revenue will now raise an assessment for the year 2011. Assessments for 2012 and 2013 are being deferred for the moment and I will write to you further before any action is taken for those years.
If your view is that Revenue’s position as regards liability to income tax is not correct, you can appeal the assessment for 2011 to the Tax Appeals Commission (TAC). Revenue has been asked to facilitate a test case before the TAC to determine the issue. Before a test case can be determined and dealt with, Revenue is required to raise an assessment on all cases where common or related issues arise. It should be noted tat the TAC is an entirely independent statutory body with sole responsibility for accepting or refusing appeals and deciding how it will process appeals where common or related issues arise.
The process of triggering an appeal (which must be done within 30 days of the date of the assessment) is simple and straightforward and will be explained to you with the letter that will accompany the tax assessment for 2011. As I have stated, the raising of the assessment for 2011 is an essential pre-requisite to allow you to have the TAC determine the technical issue, if you so wish, and from Revenue’s position ensures that if its view prevails, then collection of the tax liability for 2011 is not in any way prejudiced by the passage of time.
I would like to emphasise that once you have appealed Revenue’s assessment to the TAC, that will immediately put a halt on any action by Revenue to collect the tax involved and any interest arising. That will remain the position until the appeal is determined. Additionally, the matter will not have any negative impact on your entitlement to a Tax Clearance Certificate.
A test appeal case would mean that an initial test case would be heard and the remaining follower cases would be held in abeyance by the TAC pending the determination of the test case. Again for the avoidance of doubt, there would be no action by the Revenue in the interim period to seek to collect the tax liability in the assessment [po]sed by Revenue while the test and follower process were underway.
If you accept Revenue’s position that income tax is payable on the difference between the par value and market value of the shares and that arising from that you have a liability to tax, then your appeal would not require a determination where the tax liability is agreed between us i.e. Revenue and you. Subject to such an agreement, we could then proceed to deal with the matter of payment.
If you agree that a liability to tax arises and make arrangements for payment with Revenue and the tax technical matter is successfully appealed to the TAC by another taxpayer, Revenue will of course ensure that the decision of the TAC that is more favourable to you, if you had appealed, will be applied to you. To be clear, you will be treated the same as those who had waited on the TAC decision.
I hope this provides clarity on some of the matters that have arisen. If there are additional matters you wish to discuss, please contact Marion Ross, who can be contacted at [number with Editor].
A copy of this letter has been sent to your agent.
Kerry District Manager