Ireland’s tax exemption on stallion profits will expire on Thursday, ending a 40-year period of tax breaks that coincided with significant growth in the Irish breeding industry.

The move was not unexpected as the decision to do away with the exemption was announced in 2005, when the European Commission argued that the Irish breeding industry exemptions were nothing more than state aid. 

The change means breeders will have to pay income and corporation taxes on profits from their stallions. Ireland’s corporation tax rate is about 12.5%, and will apply to stud fee income from stallions from August 1 onward. 

“[The tax break] was a big incentive to the industry at a time when there wasn't an industry, and it was a smart move of the government to introduce it and of ensuing governments to maintain it,” Coolmore's John Magnier told Racing Post. “Now the industry is up and running and in a position where it can offer so many other advantages—Ireland has the climate, the environment, the people, and the help that the government continues to provide. There are a lot of positives, and it's also the case that the industry will now be able to contribute to the exchequer.”

Joe Foley, chairman of the Irish Thoroughbred Breeders' Association and owner of Ballyhane Stud, called the exemption “a major catalyst” in developing Irish breeding from “a small cottage industry” into its current position among the world leaders.

“The ending of the stallion tax exemption scheme is obviously going to have a negative effect on the Irish bloodstock industry, but we'll only see how negative over a period of years,” Foley said.

Foley said he fears the changes will make it difficult for Irish breeders to bid competitively on stallions against rivals from Kentucky and other countries who enjoy lucrative breeders' incentives.

Stallion owners will be able to write off the purchase price of a stallion over four years.

Since the exemption was introduced in the late 1960s, Ireland has become the third largest producer of Thoroughbreds worldwide, behind only the United States and Australia, and accounts for 42% of Thoroughbred production in Europe, Racing Post reported.