IRISH STUD farm owners are set to lose a loophole that allows them to pay no tax on the “nomination fee” they charge for covering a broodmare.

The European Commission has concluded that the 35-year old dispensation is an illegal “state aid” that distorts the EU market in favour of Ireland.

Unless Dublin appeals against the decision, the standard 12.5% rate of tax will apply to future fees.

It is estimated that the decision will cost the industry €100m (£69.2m) each year, but there will be no arrears to pay, because the rule predated Ireland’s entry to the EU.

The Commission has been investigating the tax break since a complaint in 2003, which could have stemmed from the high profile dispute over champion stallion Rock of Gibraltar.

Ireland‘s thoroughbred breeding industry accounts for 40% of the EU market, attracting investment from big names like the Aga Khan and the Makhtoum brothers.