Saturday 10 December 2016

Grey market in Kerry Co-op shares led to Revenue bills

Unofficial market for Kerry Co-op shares put significant value on holdings

Published 27/11/2016 | 02:30

Minister Eoghan Murphy
Minister Eoghan Murphy

Strong demand for Kerry Co-op shares on an unofficial market prompted the Revenue Commissioners to issue letters to 400 Kerry milk farmers in recent days, notifying them of a tax demand on so-called patronage shares, according to sources.

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The shares were issued based on the volumes of milk supplied and Revenue has now decided that they should be counted as trading income and subject to income tax, PRSI and USC.

Typically co-op shares have just a nominal value, but unofficial trading in Kerry Co-op has resulted in significant prices being achieved for the shares.

The Co-op owns just under 14pc of Kerry Group plc, which is worth around €1.6bn. There are four million Co-op shares in issue. A "look-through" value, which divides the value of the Co-op stake by the number of Co-op shares gives a value of €400 a share. A discount is then applied due to the lack of liquidity in the grey market. One source said that shares had been known to change hands for €220. In the raft of letters, Revenue values patronage shares issued in 2011 at €65, €75 in 2012 and €90 in 2013.

The Kerry Co-op has slowly being distributing plc shares to members, and buyers of the Co-op shares are taking a long-term view that the Co-op stake may be distributed over time.

"It is clear that the shares are valuable," said one farming source.

Late last week Minister of State Eoghan Murphy said in the Dail: "To apply a different treatment to farmers who receive valuable shares as a result of their ongoing trading relationship with the co-operative would call into question the taxation of all forms of share-based remuneration received by employees or self-employed contractors in other sectors of the economy."

Shares worth several millions of euro have changed hands, with a growing numbers of shares now owned by non-farmers. All trades must be rubber-stamped by the Co-op.

Sources close to Kerry played down the level of activity for the shares. However, Revenue is known to have been looking at Kerry Co-op shares for some time.

While there was an expectation that Revenue would target underpaid tax on the sale or inheritance of shares, there is considerable surprise that income tax is being applied.

The demands issued by Revenue range from €15,000 to €30,000 and farmers who received the letters have been given 21 days to respond to the Revenue on the issue.

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