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Exploring Agricultural Taxation in Europe

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Exploring agricultural taxation in Europe Hennie van der Veen Harold van der Meulen Karel van Bommel Bart Doorneweert Projectcode 30816 April 2007 Report 2.07.06 LEI, The Hague I The Agricultural Economics Research Institute (LEI) is active in a wide array of research which can be classified into various domains. This report reflects research within the following domain: Statutory and service tasks ; Business development and competitive position Natural resources and the environment Land and economics Chains Policy Institutions, people and perceptions Models and data II Exploring agricultural taxation in Europe Veen, H.B. van der, H.A.B. van der Meulen, K.H.M. van Bommel and B. Doorneweert The Hague, LEI, 2007 Report 2.07.06 ; ISBN/EAN 978-90-8615-145-5 Price €21.50 (including 6% VAT) 207 p., fig., tab., app. This report describes the tax systems in ten European countries, focusing on agriculture. It not only deals with income tax, it also describes other taxes such as gift and inheritance tax and Value Added Tax. This information leads to an analysis of the impact of taxation on the competitive position of Dutch agriculture. Orders: Phone: 31.70.3358330 Fax: 31.70.3615624 E-mail: [email protected] Information: Phone: 31.70.3358330 Fax: 31.70.3615624 E-mail: [email protected] © LEI, 2007 Reproduction of contents, either whole or in part: ; permitted with due reference to the source not permitted The General Conditions of the Agricultural Research Department apply to all our research commissions. These are registered with the Central Gelderland Chamber of Commerce in Arnhem. III IV Contents Page Preface 7 Summary 9 1. Introduction 17 2. The agricultural situation 20 2.1 Characteristics of agriculture in the analysed countries 20 2.2 Structure 22 3. Comparison of income taxation 26 3.1 Introduction 26 3.2 Income assessment 27 3.3 Other allowances and credits 38 3.4 Rates of income tax (including social security and other obligatory contributions) 41 3.5 Comparison of income tax (including social security and other obligatory contributions) 44 3.6 Overview of taxation of agricultural income 50 4. Comparison of other taxes 53 4.1 Tax on property and wealth 53 4.2 Inheritance and gift tax 55 4.3 Other taxes 60 4.4 Overview 64 5. Discussion and conclusions 66 5.1 Discussion 66 5.2 Conclusions 66 5.3 Suggestions for further research 70 Literature 71 Appendices 1. The Netherlands 73 2. Belgium 84 3. Czech Republic 98 4. Denmark 111 5. France 123 5 Page 6. Germany 138 7. Hungary 154 8. Poland 167 9. Spain 177 10. United Kingdom 190 6 Preface This report has been prepared on behalf of the Dutch Ministry of Agriculture, Nature Man- agement and Food Quality and shows us agricultural taxation in ten European countries. The descriptions of the individual countries contribute to a comparison of the systems and their impact on the relative competitive position of Dutch Agriculture. The research was conducted by Hennie van der Veen, Harold van der Meulen, Karel van Bommel and Bart Doorneweert, all working at the Dutch LEI (Agricultural Economics Research Institute). They benefited from comments and discussions with the advisory committee consisting of Peter van de Weegh, Gerrit Meester and Jacques Urselmann from the Dutch Ministry of Agriculture, Nature and Food Quality, Sjaak Jansen from the Eras- mus University of Rotterdam, Michiel Spanjers from the Dutch Ministry of Finance, Pas- cale van Duijse from the Dutch Ministry of Housing, Spatial Planning and the Environment and Arjen Sukkel of the Dutch Association of Accounting and Tax Consult- ing offices (VLB). This study also acknowledges the input of foreign experts. We would therefore like to mention: - Belgium: Danny Immegeers (Federal Public Service Finance) and Dries Nuytten (SBB accountants and tax consultants); - Czech Republic: Ladislav Jelinek, Tomas Medonos and Tomas Doucha (Vuze: Re- search Institute of Agricultural Economics); - Denmark: Lars Eghøj (Danish Agriculture); - France: Harm Hof (Europe Ruris) and Christian Jacquot (Bureau Etudes Fiscales); - Germany: Enno Bahrs (University of Göttingen) Rüdiger Parsche and Manfred Schöpe (IFO) and Gerhard Reintzsch (Federal Ministry of Food, Agriculture and Consumer Protection); - Hungary: Marianna Balogh (Agricultural Economics Research Institute (AKI)) and Ildiko Nagy; - Poland: Adrian Maczura and Paweł Rutowicz (Rödl and Partner) and René Segeren (Polagricon); - Spain: José Rodriguez and Erik Kavelaars (IVC-consultants); - United Kingdom: Peter Prag and Roger Gibbard (University of Reading). Dr. J.C. Blom Director General LEI 7 8 Summary This report originates from the constant need for information about the competitive posi- tion of Dutch agriculture. One of the factors influencing the competitive position is the tax system. In the Netherlands, the tax system is fairly general, while other countries may have more specific agricultural facilities or other favourable facilities. This research describes the tax systems in ten European countries (the Netherlands, Belgium, Czech Republic, Denmark, France, Germany, Hungary, Poland, Spain and the United Kingdom (UK)) and analyses the effect of differences between the countries on the competitive position of Dutch agriculture. In this study we assume that the competitive position of agriculture is supported if: - the tax burden is lower; - innovation and investments are supported; - larger farms, that have in general lower cost prices than smaller farms, are discrimi- nated positively, leading to structural development and efficiency of scale; - older farmers are triggered to leave the sector; - successors have to pay lower prices for a farm. It should be noted that such effects of taxes can partly be offset by market responses (e.g. higher prices of land and quota). Income assessment Compared to the other countries analysed, the Netherlands has the largest percentage of farms with an economic size of more than 100 ESU1. Although in the Netherlands, only 2% of the farms is larger than 100 ha, expressed in economic size, 32% of the farms is lar- ger than 100 ESU. This is the highest percentage of the analysed countries. Of the new EU countries, Poland and Hungary have many small farms; while in the Czech Republic the percentage of large farms (> 100 ESU) is even more than the percentage in Spain. Most agricultural production takes place on the family farm, either as a partnership or as a one-man business. In the Netherlands and the UK, the main business form is the partnership. Only in the Czech Republic, the legal person is rather important. Taxation at partnership level is more favourable than taxation on a single entrepreneur due to the pro- gressive tax rates and other tax facilities available per entrepreneur. In the Netherlands and most of the other countries analysed, the personal income tax is the main tax system for the agricultural producers. Exceptions are the Czech Republic (corporate income tax main system), Denmark (additional company scheme), Poland (agri- 1 The ESU (European Size Unit) indicates the financial potential of the holding in terms of the margins which might be expected from crops and stock and is a better measure to compare the size of the farms. 9 cultural property tax main taxation) and Hungary (broad range of systems, especially fa- vourable for the smaller farmers). The Netherlands is the only country with full accounting rules for all farmers. In most of the other countries, the larger farms are obliged to have accounts and simplified accounting or estimation of the profit can only be applied by small farmers. Not all rules for normatively assessed income are even favourable. However, in all countries (except Poland), the normative assessment is optional, which implies that applying the normative assessment is based on a free choice and consequently will be favourable in most cases. Analyses based on the FADN-RICA database show that in most countries the norms for the normative assessment lead to lower assessed incomes than the actual ones. Although normative assessement directly reduces the tax burden, it discourages farm enlargement, which does not support the competitive position. The remaining part of the analysis studies the farms applying accounting. In all countries, the EU subsidies are included in the fiscal income if accounting is applied. In Belgium, a special tax rate can be applied. In other countries, if the fiscal in- come is estimated, the subsidies are not included in the fiscal income, although they might be included in the fiscal norms. The Netherlands offers a general income averaging facility to smooth the taxable in- come over three years, although due to the high threshold, the relevancy of this facility is limited. The UK and France also offer such a facility, which is specific for farmers in these countries. In Denmark, the valuation of the stock offers a smoothing facility while the company scheme has a flat rate, which makes a flattening scheme redundant. Compared to the other countries analysed, the rules for loss transfer are quite gener- ous in the Netherlands. Carry back is allowed and carry forward was unlimited until the year 2007, when a limit of 9 years was introduced for the personal income tax. No addi- tional rules exist for loss transfer. Carry back is not allowed in many of the other analysed countries, or the period or conditions are more limited. A number of countries also offer an unlimited carry forward. In most countries, just as in the Netherlands, more than one depreciation method is allowed, although buildings are usually depreciated linearly. The depreciation method mainly influences the timing of the depreciation; degressive depreciation methods (as al- lowed in the Netherlands and many other countries) offer a liquidity advantage. In the UK, the term depreciation does not exist, but it is labelled capital allowance. In most countries, except for France and the Czech Republic, purchased production rights are placed on the balance sheet.
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