Apple ruling echoes Haughey-era horse-trading

The bloodstock industry must be gritting its teeth at the political reaction to the Apple ruling. Little more than eight years ago, the Fianna Fáil-Green coalition ended a controversial provision that exempted profits from horse and greyhound stud fees from tax.

The incentive, introduced by Charles Haughey in 1969, applied to all breeds of horse, but was credited with underpinning the growth of a world-class thoroughbred industry, whose players included a mix of Irish operations such as Coolmore and Rathbarry, and overseas investors including the Aga Khan and Dubai's ruling family, the Maktoums.

Following a complaint, the EU Commission investigated the exemption and in 2007 deemed it illegal state aid, although it did not demand that the government seek payment of the tax foregone – €10.7 million a year, according to the Revenue.

So the then coalition introduced a system that taxed the profits at 12.5 per cent but allowed owners to write their stallions' value off against fees earned in their first four years at stud. Announcing the change, Revenue officials and minister for finance Brian Cowen stressed that the new rules would pacify Brussels.

There was no question of an appeal, even though the commission was clearly ruling on Irish tax law, and both Fianna Fáil and Fine Gael supported the incentive. Labour did not, although that party now supports the Government's plan to challenge the Apple ruling.

The reality was that there was a bigger game afoot. Irish tax policy was drawing fire from the EU so the government wanted to placate Brussels to avoid scrutiny and a crisis of the sort now facing the State.

Had the State appealed the stud fee ruling, it might have preserved an incentive that supported a mainly Irish industry while sending a strong signal about tax sovereignty to Europe. Instead it capitulated and cleared the way for the commission to aim at bigger targets.