The European Commission has confirmed it is investigating Ireland's tax exemption scheme for horse breeding. Ireland's EU Commissioner designate, Mr Charlie McCreevy, has championed the scheme.
The inquiry follows a formal complaint to the Commission about the exemption to stud farms for "nomination fees".
Agriculture Commissioner Mr Franz Fischler told British MEPs that the Commission had concerns about the compatibility of the exemption with State aid rules and was investigating it.
Labour MEP Mr Proinsias De Rossa, who highlighted the case and whose party has repeatedly criticised the exemption, said the Minister for Finance, as a member of the Commission, could end up "challenging his own tax exemptions".
But a spokesman for Mr McCreevy said: "That's a fair leap to make and assumes the allocation of certain portfolios which is a long way down the road."
He confirmed that Ireland had notified the stud farm tax exemptions to the Commission "going back quite a number of years" as assistance to agriculture.
Mr De Rossa said: "If the EU does rule the exemptions are an illegal state aid, then under EU competition rules the stud farms might be liable for up to 10 years' back tax with interest."
The spokesman said the Department had no indication of the state of the inquiry and would await a ruling before any question of challenge or otherwise would be considered. The source of the complaint to the Commission has not been confirmed. But two British MEPs, Prof Sir Neil MacCormick of the Scottish National Party and Liberal Democrat Mr Christopher Huhne, tabled questions earlier this year to the Commission about the exemption to stud farms for "nomination fees".
One question presses the Commission for its view on the exemption "in respect of nomination fees payable when a stallion impregnates a mare. Is this practice not an illegitimate form of state aid to stud farms in Ireland?"
At the time the Scottish manager of Manchester United soccer team, Sir Alex Ferguson, was in dispute with racing tycoon Mr John Magnier over the breeding rights for the racehorse Rock of Gibraltar.
News of the stud farm inquiry emerged as economic consultants Indecon reported that the exemptions cost the State €3 million annually in lost tax and that the average stud fee was €8,000, allowing for huge capital tax write-off potential.
