The tax-free status of stallion income in Ireland will be abolished, as had been widely predicted, but not until July 31, 2008.
Ireland's finance minister Brian Cowen announced the decision during his budget speech before the Irish parliament on Dec. 7.
Potentially a major blow to Ireland's large and flourishing bloodstock industry, the implications of the abolition in 2 1/2 years are hard to call definitively at this stage.
One of the variables is what will happen to stallion income after July 31, 2008. Cowen said he would enter into discussions with the European Commission about a new taxation regime appropriate to the Irish equine industry.
Matt Mitchell, managing director of the leading Irish bloodstock auctioneers Goffs, commented: "There are concerns that removing the tax-free status could have a negative impact but we will have to wait and see the outcome. The key will be what tax regime they replace it with."
Ireland's agriculture ministry has suggested that generous allowances for horse breeders should replace the tax break.
The Irish finance minister was forced into the abolition by the European Commission, which said the stallion concession was illegal under state aid rules after receiving a complaint, while opposition politicians had taken up the issue, saying it favored the rich over the mass of the population. Ireland is the only European country to have such a tax concession, which has been much envied by British and French bloodstock interests.
The tax concession was started in 1969 and helped the Irish bloodstock industry grow strongly, so much so that there were 10,992 live foals born in Ireland last year from 18,867 mares, as against 4,221 foals and 7,807 mares in 1974. Ireland produces more Thoroughbreds than any other European nation; the interim figure for live foals there this year is 11,325.
The Irish bloodstock industry has thrived and employs more than 16,500 people, with leading global players like Coolmore, the Aga Khan and the Maktoums plus others having invested heavily in Irish-based operations.
Some 400 Thoroughbred stallions, including Europe's 14-time champion, Sadler's Wells, stand in Ireland. The figure has decreased rather than increased in recent years because of the practice, started in Ireland, of more mares being covered per stallion - the record this year was 368.
The fee for the Sadler's Wells is private but it is estimated that the 24-year-old son of Northern Dancer, who stands at John Magnier's Coolmore Stud, costs around 250,000euros per nomination. He covered 124 mares in 2005, while Coolmore's most prolific stallion was Montjeu, visited by 193 mares according Weatherbys return of mares records.
Irish politicians want the bloodstock industry to remain healthy, while many of the biggest players are not tax resident themselves in Ireland where the corporation tax for company profits remains low at 12.5%.
Also in the future, taxed stallion income will be offset by claims for expenses and losses. With an estimated nine out of 10 new stallions failing to pay their way in the long run, this could be very significant.
Therefore, the loss of the tax break may not be too detrimental but only time will tell.