Revenue warnings of farmers’ VAT abuse ignored by finance officials

Internal records from the Department of Finance show Revenue briefed it last February that poultry processors were facilitating abuse of the VAT system by “artificially” inflating the price of feed they sold to poultry farmers.

Under the scheme detected by Revenue, the artificially high price allowed farmers to claim an excess amount of an agricultural VAT rebate known as the flat-rate addition.

Michael Noonan, the finance minister, moved to target the tax-abuse scheme in the last budget. A section of the Finance Act allows the minister to order that sector be excluded from claiming
the flat-rate addition following a Revenue review. In a memo to the finance department last February, Revenue said this new law was required because of “abuse of flat-rate addition happening in certain sectors”.

It said: “Example includes avoidance in poultry industry where the price of poultry feed is artificially inflated by the processor who contracts with the farmer to rear poultry, resulting in an inflated amount of the flat-rate addition.”

The new law was marked as “essential for inclusion” in the Finance Bill.

The Irish Farmers’ Association (IFA) lobbied to prevent Noonan bringing in the anti-avoidance measure from January 1, 2017, asking for it be delayed until next year to give poultry farmers a chance to change their business structures. Michael McGrath, the Fianna Fail finance spokesman, supported the IFA.

Documents released under freedom of information laws show the department assured the IFA that, although the new power would come into effect in 2017, it would be some time before the minister would issue any order prohibiting a sector from claiming the flat-rate addition. Revenue would not begin compiling its report until February.

On Thursday Marian Harkin, an independent MEP, raised concerns about the documents released to The Sunday Times in the European parliament. She asked why there was such a delay in tackling what the department has stated was abuse of the VAT system. “What does this say to VAT-compliant farmers and processors?” said Harkin.

“What does this mean for other agriculture sectors who have to compete? In the same week that Commissioner [Margrethe] Vestager was in Dublin to speak about illegal state aid to Apple, is this illegal state aid to the poultry sector?”

Alo Mohan, a Monaghan poultry farmer, refused to enter a co-op he said bought artificially inflated feed prices to boost the amount farmers could claim under the flat-rate addition. His chicken farm closed last January.

“For any group to artificially inflate a price to claim extra VAT returns is a form of deception,” said Mohan. “I and others refused to engage in these structures after taking professional advice that it would be wrong. Finance is aware this is wrong but they seem to be in no hurry to close down these structures, which give an unfair advantage to growers over those who decided not to engage in them.”

Raymond O’Hanlon, former managing director of Cappoquin Poultry, which went into receivership in 2013, said his firm suffered because rivals had used the tax schemes. “There now needs to be a thorough investigation into what has happened, who was involved and who was behind it. Existing legislation needs to be applied to clean it up,” he said.