This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.
Taxation in Agriculture
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Chapter 16. France
Abstract
16.1. Overview
Historically, the French agriculture sector has been subject to an extremely complex taxation system that is more generous and clearly differentiated from that applying to other sectors. Special tax provisions that exist for agriculture include an optional 87% flat rate expense deduction offered to low income farmers with annual gross incomes of below EUR 82 800 significantly reducing their tax burden and simplifying their tax administration. There are income smoothing mechanisms, investment incentives, a new precautionary savings tax deduction for all future farm expenses. VAT reimbursement occurs under two schemes, and there are partial exemptions from land taxes, discounts on land transfer taxes and incentives provided to young farmers for their first five years of farming. Tax credits for diesel fuel used in agriculture are the largest concessions accounting for 60% of fiscal expenditure (tax revenue foregone) for the sector.
16.2. Income taxation
Farm profit for individual farmers or partnerships can be taxed under two tax regimes: the micro-BA scheme and using actual income (determined by cash or accrual accounting (régime réel)). Other partnerships are in principle taxed using actual income.
Levels of turnover including subsidies and allowances generally determine the applicable tax regime. Farmers and farm businesses with a two-year average turnover of more than EUR 350 000 are taxed using accrual accounting. Farmers with a turnover below EUR 350 000 can voluntarily opt to use accrual accounting or they can use cash-based accounting.
Those farmers with a turnover from the last three years (before tax) of below EUR 82 800 can choose between cash-based accounting and micro-BA scheme. The micro-BA scheme is a form of income smoothing. Taxable income is equal to the three-year average of revenues for the tax year and the two previous years minus a flat rate 87% deduction for expenses. No evidence of actual business expenses incurred is needed to justify the deduction. In 2017, the number of agricultural enterprises under the micro-BA was estimated as being 18%.
From 2017 the micro-BA scheme replaced the collective agricultural scheme (régime forfait collectif) as a result of a major reform initiated in 2015: the scope of the micro-BA is larger than the collective agricultural scheme which had a threshold income of EUR 76 000. Although similar to the micro-BIC and micro-BNC schemes applying to commerce and industry and the liberal professions, micro-BA has a higher abatement rate, i.e. 87% compared to 72% and 34%.
Other special tax provisions for agriculture include the deduction for unforeseen circumstances (la déduction pour aléas, DPA) scheme, that was implemented in 2001 and applied until 2018. This provision allowed bookkeeping farmers to deduct a share of their annual profits on the condition that at least 50% of the deducted amount it was placed in a savings account. Under DPA deposited savings could be used within seven years for payment of expenses resulting from government recognised adverse climate events and under certain conditions, i.e. unforeseen economic events and fires. Expenses could include insurance premiums, crop and livestock losses, and the purchase of supplementary feed. The money on this account became taxable when was is used.
The DPA augmented the scheme providing tax deductions for investment (the DPI scheme). Under DPI bookkeeping farmers could deduct for five years a fraction of their profits at the end of each fiscal year in order to finance their stock, their fixed redeemable assets or their shares in an agricultural cooperative. Since 2012, DPI could no longer be used for the acquisition of depreciable property. The cumulative limit for tax deductions under the DPA and DPI schemes was EUR 150 000.
As of 1 January 2019 the DPA and the DPI have been replaced with an annual tax deduction for precautionary savings (déduction pour épargne de precaution) (DEP). Under this scheme farmers using actual income can make tax deductions provided that at least 50% to 100% of the income deducted is placed in a savings account. Savings can be used in the following ten years on all business expenses (unlike the DPA where expenditure had to be linked to an official recognised adverse climatic event or unforeseen economic event) at which point they become taxable. This is a temporary measure applying until the end of 2022.
The amount of annual income tax deductions under DEP are capped as indicated in Table 16.1.
Table 16.1. Annual precautionary savings tax deductions
EUR
|
Taxable income |
Tax deduction |
|---|---|
|
0 – 27 000 |
100% |
|
27 000 – 50 000 |
27 000 plus 30% of profits exceeding 27 000 |
|
50 000 – 75 000 |
33 900 plus 20% of profits exceeding 50 000 |
|
75 000- 100 000 |
38 900 plus 10% of profits exceeding 75 000 |
|
Greater than 100 000 |
41 400 |
For farmers under an actual tax regime, there are two income smoothing measures to avoid tax variations generated by the irregular results from agricultural activities:
spreading in the event of exceptional results whereby farmers may benefit from a seven-year averaging of their windfall profits (code 170306 in Table 17.2);
the system of the triennial average where farmers apply to be taxed on a profit equal to the average of the profits for the tax year and the two preceding years.
Young farmers are allowed to reduce their taxable agricultural income for their first five consecutive years of farming if they fall under the actual tax regime. This special tax treatment is only open to young farmers who are beneficiaries of the young farmer settlement aid (“la dotation jeune agriculteur (DJA)”). The rule also applies to tradespeople and craftspeople who start their own business. From the Finance Act 2019 the reductions for the first five years are as follows:
For the first year farm income below EUR 43 914 is exempt from tax and for income between EUR 43 914 and EUR 58 552, 60% is exempt from tax.
For the four following years:
in the case where farm income exceeds EUR 43 914, then 50% of income up to EUR 43 914 is exempt from tax and for income between EUR 43 914 and EUR 58 552, 30% is exempt from tax.
if farm income is below EUR 43 914, then 75% is exempt from tax.
Smallholders earning less than EUR 43 914 will therefore benefit from greater financial support a 100% reduction in the first year and 75% in the following four years.
To encourage capital investment two tax measures were set up for a limited period of time with the aim of accelerating farm restructuring. Both schemes are no longer in effect. The schemes were:
The exceptional deduction scheme for investment (which concerns all commercial, agricultural, industrial and liberal enterprises) which ceased in April 2017 (code 110240 in Table 16.2).
The exceptional depreciation of livestock buildings which ceased in December 2017 (code 200217 in Table 16.2).
Included in the Finance Act 2019 are the following tax measures benefiting the agriculture sector: accounting for livestock inventories until the sale of these goods (reinstating Article 72B bis of the General Tax Code until 2024) and spreading tax over five years (reinstating Article 75-0 C of the General Tax Code).
For capital gains accruing to businesses, there are special tax measures that are not confined only to the agriculture sector. Farmers are exempt from paying capital gains when their average revenue realised in the last two calendar years proceeding the capital gains realisation does not exceed EUR 250 000. Partial exemption of capital gains occurs when farmers’ average revenue in the last two years is between EUR 250 000 and EUR 350 000. To benefit from this concession the farming activity must have been running for the five previous years.
16.3. Property taxation
Property tax on developed properties (TFPB) and the property tax on non-developed land (TFNB) are local taxes that apply throughout France. Taxes are based on the cadastral rental value (or cadastral income) minus an allowance multiplied by a rate fixed by the territorial authorities. Buildings used for rural farms are exempt from TFPB. While agricultural land benefits from a 20% reduction on the TFNB.
Farmers may claim a reduction on the TFNB proportional to income losses as a result of adverse climatic events or a fire. In the case of livestock loss resulting from an animal disease epidemic the farmer may request a rebate on the TFNB corresponding to the amount of losses. Young farmers receiving settlement aids (DJA) benefit from a 50% rebate on the TFNB for the first five years of their farm business activity. This reduction in the TFNB is limited to the agricultural sector.
Concerning local taxes, other special provisions for farmers include:
An exemption from paying local business taxes (territorial economic contribution).
A permanent exemption from the company property tax (CFE) and TFPB applies to installations and buildings used for agricultural methanisation, providing that this production comes from at least 50% of matter coming from the farm.
Real estate tax is charged on persons whose net taxable wealth in real estate properties exceeds EUR 1 300 000 (this tax is referred to as the IFI). Professional property (including buildings used in agriculture) is specifically excluded from the tax base. Shares in farmland associations (GFA) which represent rented rural property under long term rental arrangements are either fully or partially exempt from the IFI. Similar exemptions exist for forestry.
Transfer duties on donations or inheritances (DMTG) are based on the value of the property transmitted. Taxes are calculated using rates that vary according to the relationship between the deceased or the donor and the beneficiary. Rural property leased on a long-term basis is partially exemption from the DMTG charges. Similar exemptions exist for forestry.
Taxes on the acquisition of real estate (DMTO) are collected by local government (departments and municipalities). Taxes are added to the sale price and are paid by the buyer. The applicable rate is set at 5.09% but in practice the overall tax rate charged by most local authorities is 5.80%. Acquisitions of rural buildings (buildings and agricultural land) leased by farmers benefit from transfer duties at a reduced rate of 0.75%. Conditions that need to be met for the discount are that at the date of acquisition the buildings have been in operation for at least two years by the purchaser/tenant and that the purchaser undertakes to develop the property for at least five years.
Acquisitions buildings (buildings and agricultural land) located in rural revitalisation zones are also subject to the reduced transfer rate of 0.715% (instead of 5.80%) on the first EUR 99 000 of the sales price with the remainder of the sales price charged the usual tax rate. This scheme is offered exclusively to young farmers receiving settlement aids (DJA) buying rural buildings and farmland for their use. The acquisition must take place within four years of granting the aid.
16.4. Tax on goods and services
Sales of goods and services are subject to value added tax (VAT) and excise duties (applying to beverages and alcohol, tobacco, domestic consumption tax on energy products, tax on oils, flour tax).
With regard to agricultural inputs (fertilisers, phytosanitary products) the rate of VAT is the standard rate of 20%. The intermediate rate of 10% applies to limestone fertilisers and plant protection products that can be used in organic farming, and organic fertilisers made from natural waste, plants or animals.
The rates applied to agricultural products are either 5.5% or 10% in the case of unprocessed products for human or animal consumption or for use in the preparation of foodstuffs or in agricultural production. There is also a 2.10% VAT rate applicable on the sales of slaughter and butchery animals to persons not registered for VAT and farmers subject to the remboursement forfaitaire (RFA).
Whilst most countries have some special VAT arrangements for farmers, France has a separate agricultural VAT system. There are two VAT regimes in agriculture based on sales volume: the remboursement forfaitaire (RFA) and the régime simplifié agricole (RSA).
The remboursement forfaitaire (RFA), is used by 12% of farmers liable for VAT in 2017 (in 1998, 25% of farmers used the mechanism). The number of farmers eligible for the RFA is decreasing steadily as the industry modernises. This regime applies to farm businesses with an average turnover of less than EUR 46 000 in two consecutive years. It provides a lump sum reimbursement: the farmer pays the VAT on their purchases without being reimbursed and they do not charge VAT on their own sales. In return, the farmer receives a payment from the State related to sales, i.e. a 5.59% reimbursement on sales of milk, poultry, rabbits, eggs, meat and charcuterie animals, oilseeds and protein crops and a 4.43% reimbursement on sales of all other products.
The régime simplifié agricole (RSA) is compulsory for farm businesses with average sales of over EUR 46 000. The majority of farmers who do not use the RFA fall under the RSA. In this simplified regime if in the year the VAT paid is greater than the sum charged by the farmer, the difference is compensated by the State. In the opposite case, it is the farmer who reimburses the difference. The VAT is thus a neutral factor for the farmer under this regime, just as it is for other professionals and there is no preferential treatment for farmers.
A domestic consumption tax is levied on energy products (taxe intérieure de consommation sur les produits énergétiques (TICPE)). The normal TICPE rate on diesel is EUR 594.00 per 1 000 litres (2018). Diesel fuel used for farm machinery and farm vehicles (as well as by building and public works businesses) benefits from a reduced TICPE rate of EUR 188.20 per 1 000 litres (code 800201 in Table 17.2). Farmers also benefit from a refund of TICPE to offset increases in the tax for climate change contributions (code 800405 in Table 17.2).
Until 2015, to expand the outlets for certain agricultural products and contribute towards better environmental protection, the government encouraged production of colza diester and bioethanols by exempting a certain volume of “green fuels” from payment of the TICPE (code 800107 in Table 16.2).
16.5. Environmental taxes
There is a tax credit available for organic farmers generating at least 40% of their revenue from organic farming as defined by EC rules (R. (EC) No 834/2007). From 2018 the tax credit was set at a maximum of EUR 3 500 (increased from EUR 2 500 previously) and can be added to aid for conversion or maintenance of organic farms paid under the CAP, up to a combined total of EUR 4 000 (code 210316 in Table 17.2).
Of the environmental taxes listed below not all of these measures apply equally to agricultural or non-agricultural activities. Some relate more specifically to agricultural activity (e.g. the diffuse pollution tax applies in particular to substances used in agricultural activities).
Under the Law on Water and the Aquatic Environment 2006 fees for diffuse pollution were implemented from 1 January 2008. This measure aims to limit the use of pesticides and the associated contamination of environments. The Finance Act 2019 increases fees for substances under the Law classified as carcinogenic.
The general tax on polluting activities (taxe générale sur les activités polluantes TGAP). This tax consists of a group of several taxes related to the environment. It is applied to companies whose activity or products are considered as pollutants, i.e. waste, polluting emissions, lubricating oils and preparations, detergents, and extraction materials. Amounts charged and the applicable tax rates vary according to the categories of activity and products. Under the new rules, tax rates vary between EUR 0.90 and EUR 9 per kilo while previously the tax did not exceed EUR 5.10. There is also a TGAP on fuels and classified installations.
16.6. Tax incentives for R&D and innovation
Research tax credits are available to all companies undertaking R&D. Research expenses including amortisation of capital assets created or acquired and used in research operations, or amortisation of patents are deductible from taxable income. Personnel costs (researchers' salaries) are also taken into account as well as operating expenses. The tax credit amounts to 30% of research expenses not exceeding EUR 100 million with a 5% rate applying above this threshold.
For innovation expenditure (e.g. implementation of prototyping of new products) claimed by SMEs the tax credit is equal to 20% of eligible expenditure up to EUR 400 000 per year providing a maximum tax credit of EUR 80 000 per year.
16.7. Other taxes
Regarding employment, there is the tax credit for competitiveness and employment. It benefits all companies employing salaried staff, subject to corporation tax (IS) or income tax (IR) according to their actual profit, whatever the legal status (sole proprietorship, partnership, corporation, etc.), and whatever the sector of activity (agricultural, artisanal, commercial, industrial, service). The tax credit is based on the gross amount of salaries not exceeding 2.5 times the minimum wage (SMIC). The rate of the tax credit is set at 6% for salaries paid in 2018. As of 2019, the credit is transformed into a permanent tax rate deduction of 6% of the employer’s health insurance contribution.
Farmers and their families and farm workers have their own social security system and around 10% of all budgetary expenditures by the Ministry of Agriculture and Food are dedicated to the agricultural social security system in 2018. Farmers’ own social security contributions formed only 18% of the total expenses for their social security system. Young farmers starting out have a sliding discount on their social security contributions for their first five years of business. To be eligible their sole business employment must be farming and they must be between the ages of 18 and 40 years at the time of starting out farming (however, under certain circumstances the 40 year old cut off may be waived). In 2018, the exemption discount was degressive and applicable below certain limits as follows:
Year 1 - 65% of the amount of the contributions for a maximum of EUR 2 842
Year 2 – 55% of the amount of the contributions for a maximum of EUR 2 405
Year 3 – 35% of the amount of the contributions for a maximum of EUR 1 530
Year 4 – 25% of the amount of the contributions for a maximum of EUR 1 093
Year 5 – 15% of the amount of the contributions for a maximum of EUR 656
There is a tax credit for replacing workers in agricultural employment. Since 2006, farmers, whose daily presence on the farm is necessary have been granted a tax credit for expenses incurred to ensure their replacement. This tax credit is equal to half of the staff expenses incurred within the 14-day replacement period. In 2017, 32 676 agricultural businesses used the replacement tax credit at an estimated fiscal expenditure cost of EUR 18 million.
Under the Finance Act 2019 from 2019 small taxes charged to the agricultural sector will be abolished. These include the tax on:
Common wheat flour, meal and groats delivered or used for human consumption. payable by the farmers producing cereals
Wood and vine plants
Marine fishery products
Adding sugar to the harvest.
16.8. Estimation of the value of taxation expenditures
The estimates of tax expenditures used as agricultural policy instruments listed in Table 17.2 are published in the report entitled Evaluation des voies et moyens (Evaluation of ways and means) concerning proposals put forward by the Loi de Finances (Finance Law). According to the Ministry of Economics and Finance the total amount of agricultural fiscal expenditures (revenue forgone) for the year 2018 was estimated at EUR 2.9 billion, compared to approximately EUR 5.2 billion of public expenditure on agriculture activities. The most important tax concessions concern consumer taxes on energy products (TCIPE) applicable to domestic diesel fuel used on farm that represents 60% of tax expenditures in 2018. It should be noted that any advantage given by using the different systems for taxing farm income has not been included because of the difficulty of measurement.
Table 16.2. Estimation of fiscal expenditures involving agriculture, 2014 to 2018
Million EUR
|
Code for the measure |
Measures |
2014 |
2015 |
2016 |
2017 |
2018 |
|---|---|---|---|---|---|---|
|
800201 |
TICPE – Reduced tax on diesel fuel (farm use and for use by building and public works businesses)1 |
1 733 |
1 820 |
1 785 |
1 835 |
1 965 |
|
(For farm use only) |
727 |
764 |
749 |
770 |
825 |
|
|
800405 |
TICPE - Rebate for farmers for taxes on energy products |
116 |
105 |
153 |
197 |
247 |
|
800107 |
TICPE - Capped exemption of a certain volume of green fuels |
145 |
114 |
40 |
- |
- |
|
060102 |
20% exemption on local land taxes (TFNB) for agricultural land |
167 |
153 |
138 |
124 |
125 |
|
170103 |
Specific deductions for investments (DPI) |
150 |
100 |
78 |
nc |
nc |
|
170105 |
Deduction for unforeseen circumstances (DPA) |
39 |
19 |
13 |
nc |
nc |
|
170201 |
Income tax deductions for young farmers |
55 |
42 |
35 |
35 |
nc |
|
170306 |
Attachment of the exceptional income of a farmer subject to a real tax system in equal parts, to the results of the exercise of its realisation and the following six fiscal years |
23 |
11 |
12 |
nc |
nc |
|
200217 |
Exceptional depreciation of livestock buildings and equipment and facilities for the storage of livestock manure equal to 40% of the cost of goods spread over five years |
- |
- |
- |
4 |
8 |
|
210316 |
Tax credit for organic farming |
21 |
21 |
29 |
49 |
nc |
|
320122 |
Deduction for employers' groups of amounts entered in a trust account and intended to cover their joint and several liability for the payment of wage debts |
6 |
6 |
8 |
8 |
8 |
|
730212 |
VAT rate of 10% applicable to components of livestock feed, fertilisers, limestone fillers and plant protection products for use in organic farming and fertilisers or culture media of agricultural organic origin |
26 |
26 |
24 |
24 |
24 |
|
730302 |
2.10% rate applicable to sales of slaughter and butchery animals to persons not subject to VAT |
7 |
7 |
6 |
6 |
6 |
|
110240 |
Tax credit for expenditures by farmers to replace farms |
13 |
14 |
13 |
16 |
17 |
|
060201 |
Tax credits for loss of crops or livestock |
14 |
6 |
6 |
6 |
34 |
|
Total for Agriculture (including forestry) |
2 803 |
2 964 |
2 884 |
2 831 |
2 914 |
Note: nc = not calculated
1. Figures in 800201 - TICPE Reduced tax on diesel fuel includes tax credits for fuel used by building and public works businesses as well as for the agricultural sector. The figures in the row beneath in italics are tax credits for diesel fuel for farm use only.
Source: Annexe au Project de Loi de Finance pour 2018, Évaluations des Voies et Moyens, Tome II, Dépenses fiscales, www.performance-publique.budget.gouv.fr/sites/performance_publique/files/farandole/ressources/2018/pap/pdf/VMT2-2018.pdf
2014 – 2017 editions of Annexe au Project de Loi de Finance, Évaluations des Voies et Moyens, Tome II, Dépenses fiscales.