The Ministers for Finance and Agriculture, Brian Cowen and Mary Coughlan, have held talks with the European Commission in Brussels amid signs that the lucrative Irish tax exemption for stud fees will have to be scrapped.

The two met with the EU Agriculture Commissioner, Mariann Fischer Boel, and Ireland's Commissioner, Charlie McCreevy, who is in charge of the internal market.

The Irish bloodstock industry is one of the most successful in the world, producing 10,000 foals a year. The industry has generated at least 15,000 jobs.

Following a complaint, however, the European Commission wrote to the Government in January, suggesting that the tax exemptions broke EU rules on state aid, thus distorting competition.

Today's meeting was to present the Government's case. If the commission is not satisfied then a formal investigation will begin.