Stallion owners will have to pay 12.5 per cent tax on their profits under a measure included in the forthcoming Finance Bill.
Profits from stud fees, paid when stallions impregnate mares, are currently exempt from tax. But an EU ruling that the exemption is an illegal state aid has forced the Government to pledge to drop it in 2008.
The change will be introduced in this year's Finance Bill. It proposes that stud fees will be taxed at 12.5 per cent, the rate levied on company profits. Owners will be allowed to write off the cost of their stallions against tax over a four-year period.
The exemption applies to all breeds of horse, and to greyhounds.
The late Charles Haughey introduced the tax break when he was minister for finance. The measure is widely credited with turning the Republic into Europe's leading producer of racehorses and the third biggest in the world behind the US and Australia.
The tax break has been under fire for several years, as its opponents claim that profits from the business are lucrative.
However, fees charged for the services of the majority of thoroughbred stallions in the Republic are under €10,000.
Most stallions require an investment in seven or eight figures, and 90 per cent of them do not make it commercially.
The Republic is competing with other jurisdictions that have various incentives for their blood-stock industries.
Australia has a similar regime to that which will be included in the Finance Bill. Kentucky, one of the key horsebreeding states in the US, has a €10 million fund to support its industry.
The Finance Bill will also include measures to update the Business Expansion Scheme (BES).
The proposal, already announced in Budget 2007, will increase the limit for individual investors to €150,000 from €31,000 and the limit on the size of funds that can be raised by companies to €2 million from €1 million.
The Irish Congress of Trade Unions has complained to the European Union that the BES proposal is an illegal state aid.
The trade union group claims that the scheme provides a tax shelter for wealthy individuals. However, a recent survey shows that the main beneficiaries of the scheme are small and developing businesses that have difficulty raising cash elsewhere.
The Bill will also bolster the section 481 tax breaks for film makers. Film producers recently warned that the Republic was losing big projects to Britain and eastern European countries because they offer more attractive tax incentives.
