Minister for Finance Brian Cowen will travel to Brussels next month to tell Agriculture Commissioner Mariann Fischer Boel the tax exemption does not breach EU rules.
Normally the State's position on such an issue would be conveyed by letter. But the issue is seen by the Government as being so important that Mr Cowen will deliver the message directly.
The State argues the tax exemption is in line with European law and should remain unchanged. It was introduced before Ireland joined the Common market, and thus falls outside the remit of the Commission.
The Commission will then decide on whether to take further action against Ireland.
In January the commission wrote to the Government informing it of its initial conclusion that the tax exemption for stud fees constituted a State aid and as such appeared to breach EU rules, which requires such aids to be notified and cleared by the Commission.
The Government was due to have responded by letter at the end of last month. Two weeks ago the Department of Finance wrote to the commission that the Government had finalised a response, but Mr Cowen wanted to meet the commissioner to inform her of the position.
Under the exemption, income from fees for covers of mares by stallions is not subject to income tax. Those fees average €8,000 per cover on a "no-foal no-fee basis" but rise to six figures for the most successful sires, such as Sadler's Wells.
The tax exemption has helped to make the Irish bloodstock industry one of the most important in the world, producing 10,000 foals a year. It is the biggest in Europe, producing 40 per cent of foals.
A recent report commissioned by the industry claimed the net cost of the tax forgone was just €3 million.
Critics like the Labour Party have claimed the tax exemption is one of a number which favour the wealthy.
The Government's anticipated rebuttal of the commission has raised expectations within the bloodstock industry that the exemption will be retained, despite an ongoing review of all tax exemptions.
Industry interests have also been saying it was the subject of two independent reviews in the 1980s and 1990s, both of which recommended its retention.
For the first time since the exemption was introduced, however, those who claimed it will be required to make returns to the Exchequer for 2004.