I propose to take Questions Nos. 80 to 88, inclusive, together.
Profits or gains arising to an owner or part owner of a stallion from the sale of services of mares within the State by a stallion or from the sale of rights to such services have been taxable since 1 August 2008. Previously, these profits were exempt from income and corporation tax. Figures for the profits earned from the provision of stallion stud services were required to be returned in income tax and corporation tax returns from the year 2009 onwards. The figures thus entered are as set out in the following table for the tax years 2009 to 2011, the most recent available.
Profits earned from the provision of stallion stud services
Tax Year
|
Income Tax Returns
€m
|
Corporation Tax Returns
€m
|
2009
|
0.5
|
4.0
|
2010
|
0.7
|
2.3
|
2011
|
0.7
|
2.2
|
In interpreting these figures it is important to bear in mind that they are profits as opposed to the total of the fees earned by an owner. The fees represent turnover, as opposed to profits. Income tax and corporation tax are charged, of course, on profits or gains rather than turnover. In calculating the profits or gains, stallions are treated as stock in trade which means that income from stud fees and profits or gains on the sale of the stallions are fully taxable in the hands of both corporate and individual owners.
In computing profits, a write-off over 4 years of the “initial value” of the stallion is allowed as a deduction for tax purposes. This reflects the fact that some stallions have a short nomination life and also takes into account that the majority of stallions are unsuccessful at stud. The impact of the deduction on taxable profits during the write-off period is directly related to the success, or otherwise, of the stallion. Without this provision the cost of a stallion would, under normal rules, be allowed as a deduction upon its disposal or death.
The “initial value” of a stallion is its market value on the later of 1 August 2008 (i.e. the date the profits became taxable) or when it is purchased for, or appropriated to, stud activities. For this purpose, “market value” is the price the stallion would fetch on the open market or, where the purchaser and vendor are not connected and the transaction is at arm’s length, the price actually paid.
The Deputy has referred to the “amount of tax revenue foregone as a result of the current scheme for the taxation of stallion profits”. However, as I have outlined, the profits or gains from this activity – as opposed to the turnover- are taxable in the same way as for other activities the profits or gains of which are liable to income tax or corporation tax.
The Deputy has also asked about the contribution to tax revenues arising from the taxation of these profits or gains. However, as I advised Deputy McGrath in my reply of 11 June last (PQ Ref No. 27413/13), I am informed by the Revenue Commissioners that as statistics on income tax and corporation tax receipts do not generally distinguish between the yields from different sources of income, the figures of tax yields from stallion stud profits are not separately identifiable. All taxpayers, both individual and corporate, can have a number of sources of income, and can avail of a variety of different deductions and reliefs, all of which affect the final tax liability. In addition the profit figures shown above may themselves be reduced by capital allowances or losses to which that taxpayer may be entitled. Therefore, it is not possible to infer from these figures the amount of tax that is generated solely from the taxation of these profits or gains.
Income tax and corporation tax are self-assessed taxes. Full details of deductions claimed in calculating profits are not required when a return is being filed. Should a taxpayer be selected for audit, then these details have to be provided. It is not clear what purpose would be served by requiring a detailed analysis of the deductions made in arriving at the profits or gains from stallions.
Finally, I do not propose to ask the Revenue Commissioners to provide a report analysing the tax paid by corporate and individual stallion owners since August 2008. The Commissioners keep the general operation of the tax system under constant review using both statistical information and information gathered from audits and other interventions with taxpayers. Horse breeding and stud farming are subject to a similiar system of income tax on profits as other sectors and are subject to the same compliance programmes by the Commissioners as any other sector.