COMMISSION OF THE EUROPEAN COMMUNITIES 
C0M(94) 196 final 
Brussels, 26.05.1994 
*v t-
REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT 
on the operation in 1991 of the aid mechanism introduced 
by the 20th Council Directive of 16 July 1985 (85/361/EEC) 
on the harmonization of the laws of the Member States relating to 
turnover taxes - Common system of value added tax: derogations 
in connection with the special aids granted to certain farmers to 
compensate for the dismantlement of monetary compensatory 
amounts applying to certain agricultural products 
INTRODUCTION 
The 20th Council Directive (85/361/EEC) of 16 July 1985 on the harmonization of 
the laws of the Member States relating to turnover tax - Common system of value 
added tax1 authorizes the Federal Republic of Germany, by way of derogation from 
the Sixth Council Directive (77/388/EEC) of 17 May 1977,2 to use VAT to grant 
special aid to farmers to compensate for their losses following the revaluation of the 
green rate of the DM in accordance with Council Regulation (EEC) No 855/84 of 
31 March 1984.3 
The special aid may not exceed 5% from 1 July 1984 to 31 December 1988 or 3% 
from 1 January 1989 to 31 December 1991. 
Article 3 of the Directive requires the Federal Republic of Germany to ensure that 
own resources relating to transactions covered by the Directive are not affected. 
Article 4 of the Directive requires the Commission to present an annual report to 
Parliament and the Council detailing the measures taken by Germany and their 
application, having particular regard to the objectives pursued in setting up the aid 
mechanism, fiscal neutrality and the effects of the measures on the Community's own 
resources. 
The present report, which relates to 1991, is the eighth and last to be submitted under 
this provision.4 
Since 3 October 1990, the date of German unification, the 20th Council Directive has 
also applied to the new Lander.5 
OJL 192, 24.7.1985, p. 18. 
OJ L 145, 13.6.1977, p. 1. 
OJ L90, 1.4.1984, p. 1. 
First report: COM(86)260 final; second report: COM(87)292 final; third report: 
COM(88)544 final; fourth report: SEC(89) 1574 final; fifth report: SEC(90)2467 
final; sixth report: SEC(91)2035 final; seventh report: SEC(92)1904 final. 
Communication from the Commission to the Member States concerning German 
unification: COM(90)400 final, Volume I, Chapter III, Section 2.1 together with 
Volume II, SYN 297 to 302, Chapter II, Section 8 of 21 August 1990. 
CONTENTS 
1. Legislation adopted by the Federal Republic of Germany 
2. Fiscal repercussions 
3. Attainment of objectives pursued when the aid mechanism was introduced 
4. Effect of the aid on the operation of the agricultural market 
5. Effect on own resources accruing from VAT 
6. Conclusions 
1. Legislation adopted by the Federal Republic of Germany 
The first law amending the turnover tax law of 29 June 1984 (BGB1 I, p. 796; 
BStBl I, p. 423) made the following amendments and additions to the turnover tax 
law (UStG) for the period from 1 July 1984 to 31 December 1991 in order to grant 
special aid to German farmers by means of turnover tax: 
raising of the average rate for most agricultural products supplied by an 
agricultural undertaking, the flat percentage for VAT deduction remaining 
unchanged (Article 24 UStG), 
granting of the right to a reduction for flat-rate farmers and farmers subject to 
the normal scheme (Article 24(a) UStG). 
Further details about the level of this special aid, its field of application and the 
practical arrangements are given below. 
1.1 Level of the special aid 
As required by Article 2 of the 20th Directive, the maximum rates of special aid are: 
5% from 1 July 1984 to 31 December 1988, 
3% from 1 January 1989 to 31 December 1991. 
These rates apply to the tax base for agricultural products supplied by the farmer. 
1.2 Field of application 
The special aid is granted only for transactions carried out by an agricultural 
undertaking. The following are excluded: 
undertakings classified as industrial, commercial or craft undertakings 
(gewerbliche Betriebe) under German tax law. These exist in horticulture and, 
above all, in the livestock sector. However, to ensure equality of treatment, 
the special aid is given to undertakings which, for legal purposes, are 
described as industrial, commercial or craft undertakings but which, in terms 
of their structure, belong to the agriculture sector; 
undertakings involved in livestock rearing and breeding which have produced 
or reared more than 330 animals during the previous year. This rule applied 
for the first time to transactions carried out after 30 June 1985. 
As a rule, aid is granted for all agricultural products. The following transactions are 
excluded: 
transactions involving forestry products, including sawn timber, 
secondary transactions (e.g. transactions carried out by auxiliary undertakings 
or processing establishments, sale of products purchased from third parties and 
sales of agricultural machinery no longer in use), 
the supply of services. 
1.3 Practical arrangements 
As indicated above, the average VAT rate (8%) applicable to most agricultural 
products supplied by flat-rate farmers has been increased by 5% (1 July 1984 -
31 December 1988) and 3% (1 January 1989 - 31 December 1991) to 13% and 11% 
respectively, the flat rate for VAT deduction (8%) remaining unchanged. However, 
taking into account the additional VAT reduction for the special aid (5% or 3%), 
flat-rate farmers are not liable to pay any VAT to the tax authorities unless they are 
involved in the kind of livestock production mentioned above (VAT liability 5% or 
3%). 
As far as the invoiced tax of 13% or 11% is concerned, purchasers who are entitled 
to deduct input VAT may deduct the total amount of VAT invoiced to them by the 
flat-rate farmer. This arrangement ensures that the special aid indirectly invoiced to 
such purchasers is enjoyed by the flat-rate farmer. 
When supplying agricultural products farmers who are subject to the normal tax 
scheme may, apart from the deduction of input tax, reduce their turnover tax debt for 
the tax period in question by the amount of the aid. The amounts of the reduction 
(aid) must be entered in the accounts and in the tax returns, so that they can be 
distinguished from the deductible input tax. 
2. Fiscal repercussions 
VAT is a general indirect tax which, according to Community rules, cannot be used 
as an instrument for granting aid, even by using its mechanism. For this reason, a 
derogation in the form of the 20th Council Directive was necessary to allow the 
German authorities to do so. 
Nevertheless, it is worth recalling that the common VAT system and its mechanism 
are seriously distorted by combining the common rules for VAT payment with the aid 
(in the sense of an additional VAT reduction for normally taxed farmers) and by 
combining certain average rates and flat rates (which are themselves special 
rates) with the rates for the special aid (flat-rate farmers). Both inevitably haven 
an adverse effect on the transparency and neutrality of the system. 
3. Attainment of objectives pursued when the aid mechanism was introduced 
3.1. By letter dated 30 March 1993 the German Minister of Finance reported the 
reducement of VAT receipts resulting from the VAT compensation system (3% 
aid) for 1991. Reference was made to the 1984 Council Decision laying down 
the rules on offsetting the negative effects on farm income arising from the 
dismantling of positive MCAs. 
This will be the last time such aid payments are reported as the 20th VAT 
Directive allowed the payment of special aid until 31 December 1991. The 
special aid has been replaced by a per hectare premium system. 
Compared with previous years, the amount reported for the old Lander - DM 
1.5 billion — remains almost stable. Against the background of the relevant 
Directive, the overall calculations and details submitted appear to be sufficiently 
detailed and correctly carried out. There is nothing to suggest any departure 
from reports received in earlie years. 
3.2. With regard to the new Lander, not detailed information is available on 
agricultural accounts, unlike the situation relating the old Lander. Some 
estimates have been made in order to assess the level of agricultural purchases 
eligible for the VAT compensation scheme. It should be noted the the amount 
reported for 1991 ~ DM 240 million — appears lower than would be expected 
on the basis of experience in the old Lander. 
3.3. Given that: 
- this is the last report based on the VAT compensation scheme, 
- there have been no significant changes concerning the old Lander in 1991, 
- the amount reported for the new Lander appears to be low, the Commission 
carried out some simple calculations and estimates. These show that the 
figures reported by the German authorities appear to be correct.Consequently, 
no further investigations are necessary. 
4. Effect of the aid on the operation of the agricultural market 
4.1 As stated at point 4.2 of the 1985 report (COM(87)292 final), it is virtually 
impossible to assess the effect of the dismantling of the German MCAs on 
1 January 1985 and of compensation by means of VAT in isolation from other factors 
affecting the market. 
4.2 Examination of agricultural prices and trade shows that trends in Germany are in 
line with those in the other Community countries. The Commission does not have 
any clear evidence to suggest that the granting of special aid in Germany affected the 
functioning of the Community agricultural markets in 1991. 
5. Effect on own resources accruing from VAT 
5.1 In accordance with the timetable agreed on in the Advisory Committee on 
Own Resources (see the first report on the operation of the aid mechanism, points 5.1 
and 5.2), the German authorities supplied on 4 May 1992 a definitive calculation of 
the correction made to 1990 VAT receipts to offset the effects of the special aid. 
After the calculations had been checked and approved by its departments, the 
Commission, in a decision of 2 September 19921 fixed the amount of VAT own 
resources due from the Federal Republic of Germany for 1990 in respect of 
transactions covered by the 20th Directive at DM 152.97 million. Pursuant to the 
procedures laid down in Council Regulation No 1553/89 this is the amount deriving 
from a positive correction to receipts of DM 1 602.4 million. 
5.2 In the statement of the 1991 VAT own resources base presented by the German 
authorities in July 1992, the provisional amount of the positive correction to receipts 
for 1991 is given as DM 1 491 million for the territory of the Federal Republic of 
Germany before 3 October 1990 and as DM 240 million for the new Lander. 
OJ L264, 10.9.1992, p. 22. 
5.3. The figures given in the annual statement, corrected in the final calculations 
submitted by the German authorities on 30 March 1993, are as follows (DM 
milion): 
A. Territory of the Federal Republic of Germany before 3 October 1990 
On-the farm consumption of farmers opting for normal scheme 16 
Supplies by agriculture according to the agricultural accounts 52.939 
Less : Sales by 'Gewerbliche Betriebe' 2.511 
Sales by non-farmers 144 
Direct sales by flat-rate farmers to consumers 3.213 
Sales by agricultural undertakings with more than 330 
livestock units 104 
plus : Items not included in the agricultural accounts: 
Sales on live animals to other sectors 2.956 
Sales by flat-rate farmers to farmers opting for the 
normal scheme and sales by farmers opting for the 
normal scheme to other farmers 
195 
50.134 
3 % special aid : 0,03 x 50.134 = 1.504 
B. New Lander 
Supplies by agriculture 8.000 
3 % special aid : 0,03 x 8.000 = 240. 
6. Conclusions 
German legislation is in conformity with the terms of the 20th Directive. 
The correction made to VAT receipts to offset the effect of the the aid on 
VAT own resources has been provisionally estimated at DM 1 744 million. 
According to the calculation procedures laid down in Council Regulation No 
1553/89, the amount of additional VAT own resources, involved is DM 
164,682 million. 
ISSN 0254-1475 
COM (94) 196 final 
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