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Vol. 1983/0 166 
  
 
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Conformém ent au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983 
concernant l'ouverture au public des archives historiques de la Communauté économique 
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983, 
p. 1), tel que modifié par le règlement (CE, Euratom) n° 1700/2003 du 22 septembre 2003 
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classifiés présents dans ce dossier ont été déclassifiés conformément à l'article 5 dudit 
règlem ent. 
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983 
concerning the opening to the public of the historical archives of the European Economic 
Community and the European Atomic Energy Communit y (OJ L 43, 15.2.1983, p. 1), as 
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243, 
27.9.2003, p. 1), this file is open to the public. Where necessary, classified documents in this 
file have been declassified in conformity with Article 5 of the aforementioned regulation. 
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom  1. 
Februar 1983 über die Freigabe der historischen Archive der Europäischen 
Wirtschaftsgemeinschaft und der Europäischen Atomgem einschaft (ABI. L 43 vom  15.2.1983, 
S. 1), geändert durch die Verordnung (EG, Euratom) Nr. 1700/2003 vom 22. Septem ber 2003 
(ABI. L 243 vom 27.9.2003, S. 1), ist diese Datei der Öffentlichkeit zugänglich. Soweit 
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COMMISSION OF THE EUROPEAN COMMUNITIES
C 0 M C 8 3 ) 435 final
Brussels, 1 2  July 1983
Report from the Com m ission to the Council
Proposals for improving and adjusting the arrangements 
introduced by certain M em b er States under the C o m m o n  flat-rate
scheme for farmers
■ ;  Au S e c r é t a i
\  G énéra!
C 0 M C 8 3 ) 435 final

R E P O R T
submitted in accordance with Article 2 5  (11) 
of the Sixth Council Directive of 1 7  M a y  1977
Proposals for improving and adjusting the arrangements 
introduced by certain M em b er States under the c o m m o n  
flat-rate schem e for farmers
(Commission Communication to the Council)

LAYOUT OF THE REPORT
I. Different machinery for payment of flat-rate compensation in  
different Member States
A· Analysis of the existing systems
B. Practical procedures for payment of flat-rate compensation
II. Differences in the scope of the flat-rate schemes for farmers
A. Nature and scope of the activities concerned
B. Options available for flat-rate farmers
C. Problems raised by the inclusion or non-inclusion of direct  
exports when compensation is calculated
III. Analysis of the rates of flat—rate compensation applied in the  
Member States
TV. Conclusion
Annexes 
Table I
Description of the arrangements introduced in the Member States under  
Article 25
Table II
Rates of VAT on agricultural products and flat-rate compensation

INTRODUCTION
Article 25 of the Sixth Directive ^ allows Member States to apply to  
farmers a flat-rate scheme to offset the value added tax charged on their  
inputs. Paragraph 11 of that Article requires the Commission to present  
to the Council new proposals concerning the application of value added tax  
to agricultural transactions before the end of 1983·
The purpose of this report is to review the way in which Article 25 has  
been applied in the Member States which have made use of the option end to  
present proposals for improving the operation and furthering the  
harmonization of the national schemes currently applied to agriculture.
The various schemes are described in an annex. Each section of the report  
analyses the divergences observed in the implementation of the common flat-  
rate scheme of Article 25 by different Member States and presents proposals  
for improvements which might be envisaged as a result.
THE VARIOUS FLAT-RATE SCHEMES FOR FARMERS IN THE MEMBER STATES l ANALYSIS 
AND CONCLUSIONS
Seven Member States (the Netherlands, Ireland, France, Luxembourg, Germany,  
Belgium and Italy) have chosen to adopt a special scheme for farmers which  
differs from the special scheme for small undertakings. A comparison of  
the various schemes set up under Article 25 of the Sixth Directive has  
revealed the following.
I. The machinery for payment of compensation differs in practice
A. Analysis of the existing systems
Of the two systems proposed in Article 25(6) of the Sixth  
Directive, only France has chosen payment of compensation by the  
public authorities.
Sixth Directive of IT May 1977 on the harmonization of value added tax,  
OJ No. L 145 of 13 June 1977

The other six Member States opted for the system by which compensation  
is paid by the purchaser. But this system itself is designed and  
implemented in two different ways.
(i) Germany and Luxembourg consider that flat-rate farmers should  
pass on VAT in the normal way (sometimes at specifio rates),  
with the tax passed on them being deductible by the taxable  
person to whom the goods or services are supplied. In that  
way flat-rate farmers are deemed to recover the VAT on inputs.  
Where the compensation rate is the same as the rate of VAT  
applicable to the supply of agricultural products or agricul­
tural services (in Germany: Y $ fo fir wines, beverages and  
services; in Luxembourg: 5 $), the flat—rate farmer has in  
effect nothing to pay to the Treasury. Where, on the other  
hand, the rate of compensation is lower, the flat—rate farmer  
is required to pay the balance to the Treasury (in Germany, for  
wines, spirits and certain sawmill products the compensation  
rate is 7*5 $ while the VAT rate is 13 $, leaving a balance of  
5*5 i ° to tie paid over).
The corollary of this scheme is that VAT is collected from all  
purchasers irrespective of whether they are taxable persons or  
not. In any case, that distinction is not mandatory since  
Article 25(8) states that the flat—rate compensation, other  
than that relating to supplies to taxable persons, is deemed 
to be paid by the purchaser or customer.
(ii) In Ireland, Belgium and Italy, compensation
is collected by invoicing a percentage over and above the cost  
of the transaction which is supposed to correspond directly to  
the input tax fixed at a flat rate. Strictly speaking, Ireland 
authorizes the flat-rate farmer to pass on his VAT on inputs  
to all goods and services he supplies, but makes payment  
mandatory only by a purchaser who is a taxable person. In the 
Netherlands, this is done using a certificate.
•A

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In Belgium and Italy the flat-rate compensation percentage may  
be invoiced only where the supply of goods or services is to  
taxable persons (in Belgium, taxable persons making VAT returns) ;  
in the case of transactions with non-taxable persons, Dutch,
Italian and Belgian legislation provides that compensation is,  
as provided for in Article 25(8), "deemed to be paid by the pur­
chaser or customer".
In Italy, flat-rate farmers (excluding stock farmers) may opt out  
of the system of flat-rate refunds with retrospective effect in  
order to obtain a refund of their real input charge.
Conclusion as to the differences between these systems
These procedural differences do not, however, distort the mechanism
laid down in Article 25, which remains correctly applied, despite
a relative divergence concerning the obligation, or absence of
obligation, to pass on the compensation in transactions conducted with 
non-taxable persons, except in the case of the optional scheme, which,  
in Italy, allows flat-rate farmers to obtain refund of the effective  
amount of VAT on their inputs.
To complete the review of the agricultural schemes in operation,
mention should be made of the French special tax exemption scheme
for small farmers whose turnover does not exceed FF 10 000 (which
probably means that the scheme is not used given the very low ceiling
and the requirement that the farmer must derive at least 80 *fo of his
income from agriculture in order to qualify). There is graduated tax
relief for farmers with a turnover of between FF 10 000 and 17 000.
In any event, this scheme for very small farmers must be distinguished
from the flat—rate compensation scheme under Article 25, since in the
former case the exempted undertakings receive no compensation for
their VAT on inputs but are authorized to invoice VAT on their
transactions. Nor can it be likened to the exemption scheme for
small firms which, in France, relates to the amount of tax due and
allows VAT to be invoiced. This special scheme appears incompatible
with Article 25 of the Sixth Directive and should be abolished. What 
is more, it applies to an insignificant number of farmers.
Finally, it is important to note the apparent distortion which arises
when the flat-rate compensation percentages applied to transactions
between flat-rate farmers and taxable persons are lower than the rates
of VAT applicable to the same transactions carried out by farmers
•A

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subject to the normal scheme or to imports. The taxable person who  
purchases the goods or services first pays a certain percentage,  
which is lower when he buys from a flat-rate farmer. When the  
product or service incorporated into its value added is resold,
a catching—up operation takes place and the transaction is ultimately^  
subject to the same rate of VAT, irrespective of the source of supply . 
Nevertheless, this indirect
phenomenon (which occurs only when the rate of compensation is lower  
than the rate of VAT normally applicable or when a refund is made by  
the Treasury, in which case the purchaser has nothing to pay to the  
flat-rate farmer) is inherent in the system of compensating for VAT  
on inputs. Of course, the opposite can occur when the compensation  
percentage is higher than the rate of VAT normally applied to the  
same goods. A taxable customer buying from a flat-mate farmer would  
in that case temporarily pay more VAT than he would if he had 
imported the same goods or purchased them from a farmer subject to  
the normal tax scheme. This is due to the fact that, although both  
these rates are expressed as a percentage of the selling price, they 
cover quite different things (refund of the VAT paid by the flat-  
rate fanner on inputs in one case; payment of tax on the added value  
of the goods at their particular stage in the other).
B. Practical procedures for payment of flat-rate compensation
In Member States which operate a system of refunds by the purchaser,  
the compensation is actually paid by taxable purchasers, who are en­
titled to deduct it from their own VAT liability, and this refund coin­
cide with payment for the goods purchased from the flat-rate farmer.
In France, the refund is made by the Treasury on the ba^is of an annual  
application by the flat-rate farmer, who must submit certificates from  
those of his customers who are taxable persons.
The procedure for invoicing the compensation is either that the flat-rate  
farmer himself issues an invoice (in Ireland, Luxembourg, Belgium, and,  
in some cases, Germany) or that this obligation may be transferred to  
the taxable purchaser, who sends a duplicate of the certificate of  
purchase to the farmer, which then serves as evidence of his own
1 In order to avoid this disparity, the Belgian authorities require a  
taxable purchaser to pay to the Treasury an amount equal to the diffe­
rence between the VAT rate normally applicable to the transaction and  
the percentage he refunds to the flat-rate farmer when submitting his  
return for the period in which the supply took place.

- 5 “
right to deduct the compensation, exoept in the French system where  
this certificate confers a right of refund on the farmer who has to  
apply for it from the public authorities.
These two systems (refund hy the purchaser or by the public  
authorities) diverge fairly significantly in their material effects  
on the flab-rate fanner who, under the first system, receives  
compensation for his VAT on inputs as and when he supplies his goods 
and services, whereas under the second system he obtains from the  
public authorities only an annual refund, which may postdate the  
outlay by a fairly long period.
But these practical procedures fall within the jurisdiction of the  
Member States and it would not seem desirable to specify them more  
fully in the context of a Community directive.
II. The scope of the flat-rate scheme for farmers varies from one Member  
State to another
In all countries with a flat-rate scheme for farmers, this is the standard  
scheme for agriculture, encompassing a varying range of activities. The  
only categories of farmer which are excluded are, in France, large stock  
farmers (who keep more than 200 head of cattle or have sold more than 100  
head during the year) and, with effect from 1 January 1983, farmers whose
turnover exceeds FF 300 000. Also excluded are, in Belgium, farmers carrying  
on their activity in the form of a commercial undertaking and, in Germany,
agricultural activities carried on by limited companies as from 1 July 1982.
The size of the flat-rate farming sector is shown in Table II. ,
As a general rule compensation is payable both on direct sales and on  
those made via a commission agent.
A. The nature and scope of the agricultural activities covered do, on the  
other hand, vary considerably from one Member State to another.
(i) All the Member States involved apply the scheme generally to
agriculture, forestry, viticulture and fish farming (Belgium and  
the Netherlands being the exception where fish farming is concerned).  
In the Netherlands and in Belgium however, only products subject  
to the reduced rate are eligible (virtually all agricultural pro­
ducts) .
(ii) Ireland restricts the flat-rate scheme to farmers who carry on  
other non-agricultural activities and whose turnover does not  
exceed tlr 15 000 per annum.

-  6 -
(iii) In Belgium, farmers must be subject to the normal scheme where  
they carry on a non-agricultural activity unless, for the pur­
poses of that activity, they are covered by the flat-rate scheme.
(iv) Stock farming (except in France for sales of imported animals) is  
also subject automatically to the flat-rate scheme for farmers.  
But Belgium and Italy also include non-land-using stock farming.
(v) On the other hand, the supply of agricultural services is not  
eligible for flat-rate compensation in Italy and France.
(vi) Primary processing by the flat-rate farmer of the products of  
his own farm qualifies for the flat—rate compensation scheme in  
some Member States: Ireland, Belgium, Luxembourg, Germany and
Italy (processing by producer groups also qualifies),
(vii)  Marketing is sometimes also regarded as an agricultural activity
ancillary or assimilated to flat-rate activities and this qualifying  
for the flat-rate compensation scheme :  this is the case in the  
Netherland with cattle dealers eligible for a specific scheme that  
results in the application of similar rules, in Germany, when this  
activity accounts for no more than 40 % of the farm's turnover,  
and in Italy where cooperatives are concerned.
In Belgium and Prance, on the other hand, marketing of the  
farm's products on the markets or from permanent premises 
equipped for retail selling is excluded from the flat-rate  
scheme. Door to door selling is excluded in Belgium, while 
bulk sales qualify for the flat—rate scheme in Prance.
The differences in the scope of the flat—rate schemes reflect  
the deliberate choices made by the Member States „0 accommodate  
the disparities between their agricultural sectors.

Conclusion to be drawn from the existence of divergences in the scope of  
the scheme
The fact that the legislation of most Member States adopts the flat-rate  
scheme for farmers as the standard system for the whole of agriculture  
seems a very broad interpretation of a particular scheme which is defined 
in Article 25(l) of the Sixth Directive as an option limited to farmers  
for whom the application of the normal value added tax scheme or the  
scheme for small undertakings would give rise to difficulties. Although 
the application of the scheme to a whole economic sector may have been  
justified during the transitional period when the VAT mechanism was being  
set up, this particular scheme should now gradually be restricted to  
small farmers for whom the application even of the simplified scheme for  
small undertakings would remain difficult, particularly as the Member States 
gave a political undertaking to this end when the Council adopted the Sixth
Directive in 1977. This restriction would in practice probably exclude  
large farms with major investment programmes which must have found the  
flat—rate compensation percentages, which are based on averages,  
inadequate, since they have opted to be taxed under the normal VAT scheme.  
This situation is fairly widespread in countries where the compensation  
rates are not sufficient to cover the aotual value added tax charge  
on inputs and where a sizeable number of farmers have, for that reason,  
opted for the normal VAT scheme. However, it would also exclude a  
fairly large number of average—sized farms in Member States which grant  
sufficient compensation to cover the VAT on inputs.
The ceiling could be established by reference to criteria relating to  
turnover or to quantities produced per hectare.
This latter parameter seems more appropriate since it reflects value  
added more accurately than turnover, which may vary in accordance with  
prices. It may also vary according to actual output.

In addition, it is stretching things a hit for two Member States to extend  
the application of the flat—rate scheme, one to middlemen (cattle dealers)  
and the other to commercial activities (up to 40$ of turnover)·
o
o o
To close the chapter on the scope of flat—rate schemes for farmers, mention  
should he made of the differences in Member States* treatment of the  
disposal of capital goods which have been used for farming purposes.
- Ireland, Belgium and the Netherlands allow a special exemption for sales of  
such goods by flat-rate farmers. In France, these goods are exempt under 
the general scheme for used goods.
- In Germany and Luxembourg, the disposal of such goods is included in the  
basis for calculating the flat-rate compensation.
- Such disposals are, in theory, taxed in Italy but, where there is no material  
declaration or payment requirement, they are, in fact, exempt.
To include the value of sales of used capital goods by flat—rate farmers  
in the basis for calculating the flat—rate compensation seems tantamount  
to refunding the VAT twice over: once when the agricultural products are
sold, and a second time when the means of production (mainly agricultural  
machinery) is resold.
Article 25(5) of the Sixth Directive specifies that the flat—rate percentages  
apply to agricultural products and services, and do not therefore include  
the disposal price of used capital goods sold by flat—rate farmers. The  
calculation basis used by these Member States therefore seems incompatible  
with the Sixth Directive.

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On a practical level, however, it is understandable that these Member  
States baulked at making flat-rate farmers subject to the normal VAT 
scheme only when they were selling used goods. For most farmers this  
would have meant them making a specific return and paying the VAT collected  
for that one transaction. To include the sale of used goods in the flat-  
rate scheme for farmers would alleviate that practical difficulty.
However, that change would be equitable only if the macroeconomic  
estimate of the value of sales of these used goods were added to the  
final production of farms and thus, in practice, equated to a receipt.
This would give an accurate ratio for determining the rate of  
compensation, i.e.
total input tax for the sector
final production^ - f .  resale price of used capital goods
Failing that, i.e. if the resale price of used goods were not taken into  
account, the compensation rate would be overestimated.
It seems advisable to establish a common rule either to exempt such sales  
or to include their value in the calculation of the compensation rate, if  
it is decided on practical grounds not to apply the general principle that  
the disposal of such goods should not be liable to VAT.
The implications for own resources differ depending on the scheme in question :
- in Member States that exempt such disposals, there is, in the case of goods  
sold to another taxable person (second-hand dealers or farmers subject to  
the normal scheme), a catching-up mechanism at the subsequent stage and,
as a result, no distortion occurs with regard to own resources. Where  
goods are sold to another flat-rate farmer and where the annual statistics  
on gross fixed capital formation, on which the flat-rate compensation per­
centage is calculated, take account of the net amount of investment during  
the year (less disposals of second-hand goods), the basis for own resources  
is correct since the flat-rate compensation covers the actual charge ;
- in Member States that allow the flat-rate compensation to be applied to the  
amount of such disposals input VAT is refunded twice over and their revenue  
is reduced, producing a norrower own resources basis.
Including exports.

-  10  -
B. Options which Member States make available to flat-rate farmers
Article 25(lO) of the Sixth Directive provides for flat—rate farmers to  
opt either for the normal value added tax scheme or for the scheme for  
small undertakings.
Most Member States authorize this option only for the normal VAT scheme,  
except for Prance, which allows flat—rate farmers to opt for a simplified  
VAT scheme for fanners, and Germany, where flat—rate farmers may also opt  
for the exemption and graduated tax relief scheme for small undertakings 
if they fulfil the conditions.
This position seems inevitable in Member States whose flat—rate  
schemes for small undertakings are restricted to specific activities  
(Belgium and Italy) which would not be appropriate to agriculture.
On the other hand, some of the Member States (Netherlands, Ireland,
Prance and Luxembourg) which operate exemption and graduated tax  
relief schemes for small undertakings did not want to allow farmers —  
who are eligible for their own special scheme — to be able to opt for  
another exemption scheme.
Only Germany, Luxembourg, Denmark and the United Kingdom (the Latter two  
countries having no flat-rate scheme for farmers) offer their farmers the  
possibility of opting for the exemption scheme available to all  
taxable persons, although in Denmark the ceiling for exemption is so  
low (l 250 ECU) that it is probably a theoretical possibility only.
The Commission is aware that the options permitted by certain Member  
States are restricted in comparison with the provisions of Article  
25(10)of the Sixth Directive. It considers that this lack of  
conformity should disappear an a result of the adoption of a common  
simplified scheme for small undertakings. Indeed, if the simplified  
scheme for small undertakings is adapted and harmonized along the lines  
advocated in the draft directive submitted by the Commission to the  
Council concerning Article 24, flat-rate farmers should generally be  
allowed to opt for that new simplified scheme, since the whole system  
is based on the broad application of a scheme for taxing transactions and  
a low ceiling for exemption.

- 11 -
C. Problems raised by the inclusion or non—inclusion of direct exports  
by flat-rate farmers when compensation is calculated.
As far as the theory is concerned, Article 25(5) provides that the  
basis for calculating flat-rate compensation is the supply of  
agricultural products and services to taxable persons other than flair-  
rate farmers. This does not make it clear whether the basis should  
include or exclude direct exports by flat-rate farmers.
Member States have solved this problem in different ways. Some  
authorize the farmer to collect flat—rate compensation for his VAT  
on inputs on a basis which includes direct exports* this is the position 
in Ireland, the Netherlands, France and Germany (in the last case, for  
certain products only - sawmill products, wines and spirits). Other  
Member States exclude this possibility :  Luxembourg, Germany (for all
other products), Belgium. In Italy, no compensation is granted upon  
exportation but flat-rate farms may, and do, opt with retrospective effect  
for a refund of the actual amount of input VAT when exporting.
This situation is unsatisfactory as it creates distortions between  
flatrrate farmers in different Member States and does not respect the  
principle that VAT must be norr-discriminatory.
1. Prom the point of view of trade, Member States which authorize
the levy of compensation on direct exports (whether via payment by  
taxable purchasers, or via a refund from the public authorities)  
are authorizing collection of a sum which may, to Member States who  
do not authorize it, appear as an incentive to export.
2. Prom a financial viewpoint, a Member State which does not authorize  
payment of compensation on direct exports by flat—rate farmers  
finds that its basis for calculating own resources is increased by  
the norr-deductible VAT on inputs corresponding to transactions  
involving taxable purchasers.
/

12
At the same time, Member States which, 'by contrast, do authorize  
collection of the compensation by flat-rate farmers from taxable  
customers who are not established within the country of sale  
suffer the same consequence if that compensation is paid by a 
purohaser established in another Member State« This is because  
the latter pays compensation for VAT on inputs without having the  
right to deduct it, since the VAT in question was paid outside the  
territory of his country« The Member State into which the goods 
are imported also finds its own resources basis increased by this 
non-deductible VAT.
If the compensation operates via a refund from the public  
authorities, thiB amounts to a repayment by the public authority  
which has itself collected the VAT on inputs paid by the flat-rate  
farmers on their purchases — thus cancelling it out. For own  
resources purposes, the basis has therefore been corrected.
3« From a practical viewpoint, the oonsequences of authorizing flat-  
rate farmers to obtain compensation on direct exports, or  
alternatively of prohibiting them from so doing, are as follows:
— the flat—rate farmer who exports is penalized, since he has to  
forqo compensation fir his VAT on inputs and is not legally  
entitled to collect a flat—rate refund on that type of  
transaction; or
— the purchaser liable to tax who is established in another  
Member State is penalized since he is required to pay a 
compensation which is not deductible ar,d which, moreover, is added 
to the net price he has to pay and becomes the basis for  
calculating the VAT on import for which he is liable in his
own country.
Given that the exemption accorded to exports under Article 15(2) of  
the Sixth Directive seems to cover only goods dispatched by a  
purchaser not established within the territory of the country (which  
would normally have been subject to VAT within the country, whereas  
flat—rate farmers are not liable to pay VAT on their sales), the  
solutions which might be envisaged to remove these anomalies are set  
out below.
•A

- 13 -
(i) Any compensation (whether hy the purchaser or hy the public  
authorities) based on direct exports by flat—rate farmers could  
be abolished, purely and simply. From the point of view of  
equity, a prohibition of this kind does not appear justified. It  
is hardly normal practice to discourage an outlet such as exports.
In addition, it would encourage flat-rate fanners to try to get  
round that obstacle by using exporters liable to tax as middlemen,  
which would conflict with the principle of neutrality as between different  
trade channel^, which VAT aims to achieve.
(ii) Another form of compensation could be found instead of payment by  
the purchaser (who is faced with the impossibility of deducting  
tax paid in another Member State) in the case of direct exports  
by flat—rate farmers. One could, for instance, provide for  
reimbursement by the public authorities on the basis of Article 15  
of the Sixth Directive which provides for exports to be exempt,
or for an adjustment to the scope of the Eighth Directive the effect  
of which could be to treat flat-rate compensation paid by foreign pur­
chasers as input VAT paid on goods acquired or services supplied in a  
non-member country which would then become refundable. The first solution,  
which seems to have a sound legal foundation, would be simpler in that it  
eliminates one stage of adjustment for the purchaser, since the  
State concerned refunds the VAT on inputs eligible for compensation  
direct to the flat—rate farmer making the export.
However, it is essential in the case of exports, including sales to  
final consumers, that the input tax is refunded, to ensure that the  
imported goods enter the country of import without bearing any  
residual tax. The product is then taxed on import at the rate of VAT  
applicable in the country of destination.
The imported product is then in a tax position equivalent to that of  
a similar product sold by a flat—rate farmer within the country — who  
is presumed to align his prices on those of his competitor, that is  
to say on the prices charged by traders subject to the normal tax  
scheme — which includes the rate of VAT.
·/·
i

- 14
III, Analysis of the rates of flat-rate compensation applied in -the  
Member States
These rates are supposed to cover the refund of the tax charges on inputs  
paid by flat-rate farmers but not to exceed them, as provided in Article  
25(3)· They may provide for a refund which is lower than the actual  
charge, in which case flat—rate farmers have an incentive to opt for the  
normal VAT scheme, which would enable them to pass on the whole of their 
VAT on inputs in the same way as a normal taxable person.
Flat—rate percentages may be fixed by sub-sector, but it is clear that  
the total refunds effected through these various flat-rate percentages  
must not exceed the overall VAT charge on the total inputs of flat-rate  
farmers.
The requirement that the percentages applied must not Lead to a refund in 
excess of the input tax on the agricultural sector in the Member States  
has been verified, either during inspections based on the summary accounts  
of VAT own resources for 1979^SOj because the Member State concerned  
requested compensation ■under Article 8(2) of 'bwn resourced' Regulation  
No 2892/77 ( since VAT on inputs which has not been refunded in full  
inflates the own resources basis), or, alternatively, because the  
Commission had to check that the basis submitted by the Member State was  
not reduced by refunds in excess of the VAT on inputs of flat—rate  
farmers. To do this, the Commission used the -details of the calculation 
which Member States included in the notification of their flat rates.
To reduce the rate or rates of flat-rate compensation and to simplify the  
calculations to be checked in order to determine the flat rates, it would  
help greatly if Member States applied a single rate of VAT, corresponding 
to the reduced rate, to all goods, products and services used by farmers.
This would make it much easier to determine, given the value added of a particular
•A

- 15 -
sector, the weight of average VAT on inputs in relation to the production 
of that sector, and one of the major difficulties in calculating the flat-  
rate compensation percentage, which consists in breaking purchases down by  
rates of VAT applied, would be removed.
Further difficulties arise in applying Article 25(12), which refers to the  
method described in Annex C for determining the data specific to flat-rate  
farmers for the purposes of own resources. Some Member States do not keep  
separate statistics for flat-rate farmers, whose output is subsumed into  
agricultural production in general, so the calculations supplied are based  
on data for the whole agricultural sector. Statistical adjustments must  
therefore be made in order to apply the method provided for in Annex C and  
fulfil the political undertaking given by the Council when adopting the rele­
vant decision, viz. "to calculate the flat-rate compensation percentages on  
the basis of the macro-economic statistics for flat-rate farmers alone".
IV. Conclusion
The following proposals should be presented to the Council with the aim of  
securing greater convergence in the application of the common flat—rate  
scheme for farmers.
The schemes introduced in the Member States appear in principle to be in  
conformity with the approach set out in Article 25 of the Sixth Directive,  
with the exception of the special exemption and tax relief scheme for farmers  
in France and the optional scheme for obtaining a refund of the VAT on  
inputs actually paid without being liable for tax under the normal VAT scheme 
in Italy. Article 25(5) specifies that flat—rate compensation excludes all  
other forms of deduction.
With regard to the scope of the flat—rate compensation schemes ^ Member  
States should be reminded of their undertaking to take measures to limit  
its application to producers who would encounter difficulties if they were  
subject to the normal or simplified VAT scheme. For, although the scope of  
activities qualifying for the flat-rate compensation scheme has been left for the
Leaving aside the fact that Belgium and Italy should, pursuant to Article 25 
of the Sixth Directive, exclude non-land-using farming.
•A

-  16 -
Member States to decide within the limitations laid down in Annexes A and  
B (since this scheme does not derogate from the principle of VAT), it is  
essential that the compensation rates correspond as closely as possible to  
the actual VAT charge on the inputs of the recipients· Farms whose 
specifications are above average should therefore be removed from the  
flat-rate scheme.
With this end in view, the flat—rate scheme should in future:
— no longer be applied to certain farms whose legal form normally indicates  
that they are of a size for which the nonnal tax system is appropriate.  
This applies to companies with legal personality and cooperatives;
— be applied in accordance with quantitative criteria such as the size of  
turnover in the previous year. Above a certain ceiling, say 100 000 ECU,  
the normal system would automatically apply. This ceiling could be 
linked to the ceiling, where it exists, for liability to a scheme of  
direct taxation on transactions (in which case all the accounting data 
needed for a return relating to transactions would exist). In some  
sectors, the number of hectares farmed or animals sold could also be  
taken into account. Agricultural activities which are subsidiary to  
another activity taxed under the normal scheme (such as processing or  
marketing) should also be excluded;
— include a provision limiting the flat—rate compensation percentage to  
the reduced rate of tax.
The question of whether or not sales of used capital goods should be  
included must be settled in order to ensure equal treatment, particularly  
with regard to own resources.
/

Marketing operations which are regarded as an extension of purely farming  
activities (the sale of products from the farm, wholesale or retail sales  
through norr-commercial channels, without permanent premises, etc.) should  
he specified. There are in fact fairly wide disparities of treatment in  
this area, there being no explicit provision in the Sixth Directive itself.  
The marketing activities included in the flat-vate scheme should he  
restricted to the sale of products from the farm, without permanent  
premises for retail sales and without specialist sales staff, and to the  
hawking of products sold in hulk, also excluding middlemen.
The right to opt for the special schemes for small, norr-agricultural  
undertakings (exemption and the simplified scheme) should he specified in  
all countries* legislation, in accordance with Article 25(10) of the Sixth»
Directive.
Direct exports hy flat-rate farmers should qualify for compensation in so f  
as it seems unjustified to penalize sales to foreign customers, hut it is  
clear that such exports must he taken into account in determining the flat  
rate.
To obviate the current distortions resulting from the purchaser's
inability to deduct the compensation invoiced to him, a provision should be 
adopted to the effect that flat-rate compensation paid by a taxable foreign  
purchaser could be refunded under the Eighth Directive or, better still, a  
flat-rate farmer engaging in an export transaction should be granted a flat  
rate refund of his input charge by the public authorities and not, as at pr  
sent, by the taxable purchaser.
In pursuance of Article 25(3), a provision should he included to the effect  
that Member States must attach to the notification of their flat—rate  
compensation percentages details of the calculation used to determine that  
percentage. This calculation should show the amount of input charges  
determined macroeconomically and broken down hy rate of VAT. If more 
than one compensation percentage is applied to final production, it should  
show the breakdown of that production hy compensation percentage. This  
data must relate only to the activities of flat—rate farmers, and the  
statistical methods for making that breakdown must immediately he  
introduced in the Member States.
•A

Finally, in the context of measures designed to facilitate the modernization,  
amalgamation and transfer of farms, Article 5(8) of the Sixth Directive,  
which exempts from VAT the transfer, whether for consideration or not,  
of companies* immovable and movable property, should be extended to  
individual farms·
All the above measures will help to reduce as far as possible the  
distortions of competition between Community producers resulting from the  
norr-uniform application of the VAT scheme in certain areas and will further  
the gradual integration of the agricultural sector into the normal VAT  
scheme.

-  ·  - X V / l Ô V ' 8 2
FlM -R M E .  SG r-EA t* ^  · FMtWtRS _________ ________
TA
BLE I
PIPE OF CO M PENSATIO N  
ÜCEIVED BY FLAT-FA R M E R S C O N C E R N E D------------------ ------------------------------------- ! : -
PR
O DUCTS AND SERVICES 1  RATE DF PUT-RATE  
C O N C ER N ED  CO M PENSATIO N
|OPTIONRULES O N  TH E RESALE BT | RULES FOR O T H E R  TAXABLE  
FLAT-RATE FA R M E R S OF 1  ACTIVITIES OF FLAT-RATE  
USED F i R " EQ U IPM E N T  | FA R M E R SDIRECT EXPO RTSSTATISTICS
N U M B E R  OF FLAT-RATE PERCENTAGE CF  
FA R M E R S PRODUCTION INVOLVED
NETH ERLANDS ÎEFVND 31 TA X A B L E  
PURCHASERS- Fanners, sto c k  fanaerfi  
( la n d -u s in g ), h o r tic u l­
t u r i s t s ,  fo r e s tr y  owners
-  C a ttle  d e a lers-  AG RICULTURAL PRO DUCTS . 4 .7 1 *  
SUBJECT TO  TH E REDUCED j
RATE, SOLD WITHIN THE j 
C O U N T R Y
-  AG RICULTURAL SERVICES JFO R  T H E M )BXAL SCPE? ·· S p e c ific  « c a p t io n  fo r  
s a le s  o f  eauioment
No p o s s i b i l i t y  o f f i* t - r a t e  farmers
o p tin g  fo r  th e sm all
firm s scheme, exemption
or graduated tax
r e l i e fQ ualify fo r  th e  exem ption and  
graduated ta x  r e l i e f  scheme fo r  
sm all fin s sExcluded from the ba sis  
fo r  c a lc u la tin g  f l a t — ra te  
compensation2 2  000 o p tin g  !  ? 7 . 2 0 <  
fo r  th e scheme j
. i ------------ ------------------------------
IR
ELAND REFUND 3Y PURCH AS­
ERS, W H E T H E R  TAXABLE  
PERSONS O R  N O T_ A ll producers, etock  
fanners (lan d -u sin g); and  
su p p lie r s o f a g r ic u ltu r ­
a l se r v ic e s—------------------------- ----------------------- 1
- A g
r ic u ltu r a l products,  
sto c k  farm ing, fo r e str y ,  
f is h e r ie s
- P r o cessin g  o f  a g r ic u ltu ­
r a l products by the  
farmer
-  A g r ic u ltu r a l s e r v ic e s1 .5 *FO R  THE N O R M A L  SCH EM l S p e c ific  exemption fo r  
s a le s  o f eouipnent  
by f la t - r a t e  farm ersQ u alify fo r  an exemption  
scheme fo r  sm all firm s149 5 0 0 i · * ·
9 9.7 7*  o f  th e t o t a l
FRANCE refund  BY T H E  
JHEASURY on sales  to 
taxable  persons, A ll a g r ic u ltu r a l produc­
er s (n a tu r a l or le g a l  
person s) in c lu d in g  the  
CUIA and a r t i f i c i a l  in -  
e a iin a tio n  coopera tiv es
s E roeptions:
_ la r g e  sto c k  farmers
-  su p p lie r s o f  a g r ic u l­
tu r a l s e r v ic e s
-  farm ers whose turnover  
exceeds
VP 300 000 a f t e r  
1 January 1983A ll a g r ic u ltu r a l products  
w ith  th e e x c e p tio n  o f  
a g r ic u ltu r a l s e n d e e s3 .5 0 *  -  4 .7 0 *  -  
2 .9 0 *  and 2 .4 *For 3 y ears then 5 y«***  
f o r  th e s im p lifie d  
scheme fo r  farm ers or  
fo r  th e normal V A T  
schemeExemption under the  
g e n e r a l scheme fo r  
used goodsNormal scheme fo r  in d u s t r ia l  
and commerical a c t i v i t i e s .  
S im p lifie d  VAT scheme for  
farm ers, which exclu d es th s  
schema f o r  sm a ll fir m s, fo r  
tax a b le a g r ic u ltu r a l  
a c t i v i t i e sIncluded in  the b a sis fo r  
c a lc u la tin g  compensation5 0 5&  o f  the t o t a l
L U X E M B O U R GV A T  in v o iced  t o  a l l  
p u rch a sers.
Deduction o f a f l a t ·  
ra te amount o f V A T  
on in p u ts , equal to  
V A T  on o u tp u ts.. Farmers, fo r e str y  owners  
wine grow ers, nurserymen  
. Stock farm ers, poultry  
farmers (la n d -u sin g ),  
bee-keepers
. E xclusions : h o r tic u ltu r  
i s t s ,  market gardeners,- A g ricu ltu ra l and fo r e a ­
ry products and p r i­
mary p r o c e ssin g  th ereof
- A g ricu ltu ra l se r v ic e s
- R esale c t used equip­
ment5 X  for a g ricu ltu ral  
products and  
s e r v ic e s
2 %  for fo r e str y  
productsFor the normal scheme 1 
ir r e v o c a b le , but posii·*  
b i l i t y  of requesting  
the a u th o r itie s  for _  
perm ission to  revert to  
the a g r ic u ltu r a l scheme.Included in the b a sis  
fo r  c a lc u la tin g  f l a t -  
rate c c -r e n sa tio n .Q ualify for the exem ption and  
oraduated tax r e l i e f  scheme for  
s - a l l  firm s.Included in the b a sis for  
c a lc u la tio n  comnersation4 142 o p tin g  fo r  the  
normal scheme
95.75 *
G E R M A N YCOLLECTION F R O M  T H E  
PURCH ASER Of A  PER­
C E N T A G E  A D D E D  T O  T H E  
PRICE W H IC H  E Q U A L S  
T H E R A T E  O F  C O M P E N ­
SATION F O R  V A T  O N  
INPUTS- Stock farming (lan d -u s­
ing)
- Farming, fo r e s tr y , wine­
growing, h o r tic u ltu r e ,  
market gardening, fr e sh ­
water fis h in g , fis h  farm­
in g , bee-keeping
- Exclusion o f a g r icu ltu ra l  
a c t i v i t i e s  ex cercised  by  
companies with leg a l per­
so n a lity  and by firms  
which are regarded as  
in d u str ia l or commercial  
for the purposes of d i-- A g ricu ltu ra l products
- A g ricu ltu ra l s e r v ic e s
- P rocessin g and market­
ing o f farm products5 X  fo r  fo r e str y  
products
7 .5  X  for o th er a g r i­
c u ltu r a l pro­
ducts and sup­
p lie s  o f s e r ­
v ic e sFor 5 years for the  
normal scheme or for  
the scheme for small  
firm s (exem ption ana  
graduated tax r e lie f )Included in the b a sis  
for c a lc u la tin g  f l a t -  
ra te com pensation.
i
iI f  su b sid ia r y  ( ^  A O  X  o f the  
farm 's t o t a l turnover) they  
are included 'n  the f la t - r a t e  
scheme for farm ers, i f  not  
they q u a lify  for the normal  
scheme or fo r  the exemption  
or graduated tax r e lie f  
scheme for sm all firm s.c a lc u la tin g  compensation  
where c erta in  sawm ill pro­
d u c ts, wines and a lcoh ol  
are concerned. Otherwise  
excluded.
95,000 around 80 X
BELG IU MR EFU N D  B Y  T A X A B L E  
PURCHASERS- A griculture
- Stock farming
- N urseries
- Forestry
E xclusion of commercial  
firm s and taxpayers a lso- A gricu ltu ra l products
- A gricu ltu ra l s e r v ic e s2 X  for wood  
16 X  for flow ers  
6 X  for o th er pro­
ducts and s e r ­
v ic e sFor 3 years for the  
normal scheme1  S r e c if ic  exemption for  
s a le s  o f c a p ita l goods  
by f la t - r a t e  farm ers.M ay q u a lify  fo r  c o lle c t iv e  
f la t - r a t e  a -c u n ts.
Otherwise the normal scheme.c a lc u la tin g  f la t - r a t e  com­
p en sation .
ITALYR EFU N D  B Y  A L L  PU R ­
CHASERS, W H E T H E R  
TAXABLE PERSONS O R  
N O Tlia b le  to  the f la t  rate)
- General farming : 
fresh-w ater fis h in g , fis h  
farm ing, mussel breeding,  
oyster breeding and frog  
farming
- Stock farming
where turnover does not  
exceed L it 10 m illio nA gricu ltu ra l products and  
p r o c e ssin g , even by coo­
p e r a tiv e s or producer  
groups8 X  for e g g s , w ine,  
sheep, g o a ts ,  
h o r se s, p o u ltr y ,  
b ees, s i l k ,  -o o l  
15 X  for mi Ik , and
liv e  c a t t le  and  
p ig s
2 X  for other a g r i­
c u ltu r a l pro­
ductsFor the normal scheme,  
or r e tr o a c tiv e  option  
for refund o f actual  
V A T  on in p u ts.Not included in the  
b a sis for c a lc u la tin g  
f la t - r a t e  com pensation.
Taxed.Normal scheme or f la t - r a t e  
scheme for sm all firm s.Excluded from the b a sis for  
c a lc u la tin g  f la t - r a t e  com­
p en sation .subm itting retu rn s.  
3 ,3 0 0 ,0 0 0  f la t - r a t e  fa r ­
mers exempted from sub­
m ittin g  r etu rn s.

-20 -
TABLE II
RATES OF VAT ON AGRICULTURAL PRODUCTS AND FLAT-RATE COMPENSATION
(at 1 January 1982)
Rate of VAT Rate of compensation
GERMANY
Most products 6.5 $ 7.5$
Wines, beverages, services 1# 7,5%
FRANCE
Most products 7 $ 2.4$, 2.9$, 3.5$, 4.7$
Wine 17.6# 2.9$
ITALY
Cereals 2 $ 2 $
Eggs, poultry, wines 8 $ 8$
Milk, pigs, cattle 15 $ 14%
Other products 8$ 2$
NETHERLANDS
Most products 4 %
Other products 18 % 4.5$
BELGIUM
Most products 6 % 6 %
Flowers 19 X 6 %
Wood 2 % 2 %
LUXEMBOURG
All agricultural products 5$ 5 $
Wood 2 % 2 %
IRELAND
Vegetable products 0$ (
Cattle, wines, pigs 1:* [ 1 $
Poultry, fish 10$ (
DENMARK
All agricultural products 22$ nil
UNITED KINGDOM
Foodstuffs 0$ (
Other products, services 15$( nil 
(

-  21 -
ANNEX
FLAT-RATE SCHEMES FOR FARMERS  
IN THE MEMBER STATES

ANNEX
Plat-rate schemes for farmers in the Community
This Annex contains descriptive summaries of the flat-rate compensation  
schemes which exist in seven Member States (the United Kingdom and  
Denmark do not have such schemes, and Greeoe does not yet apply the  
common system of value added tax), setting out the structure of the  
system chosen, its scope, and the workings of the special schemes for  
farmers.

- 23 -
GERMANY
Section 24 of the Law of 26 November 1979
1. Structure of the German flat-rate scheme for farmers
The flat-rate scheme for farmers operating agricultural or forestry  
undertakings is a scheme whereby transactions are subject to VAT at  
specific rates which vary according to the product or service concerned,  
which is offset by a flat-rate of VAT on inputs, equivalent in most cases  
to the amount of VAT on outputs. The equation of the two rates means that  
farmers operating agricultural or forestry undertakings retain the whole  
of the percentage added to the price (except for supplies of sawmill  
products inside Germany and supplies of beverages (wines, fruit juices,  
etc.), on which VAT is invoiced at a higher rate than the flat-rate on  
inputs, leaving a net tax of 5»5 $ of the value of the sale to be paid).
The flat-rate scheme is the de jure scheme for all agricultural  
and forestry traders. They may opt for the normal VAT scheme, for a  
minimum of five years. Plat-rate farmers may choose the tax exemption 
or graduated relief scheme for small undertakings instead of the flat- 
rate compensation schemes if they are granted exemption, VAT on inputs  
is not deductible and they cannot invoioe VAT on their sales.
The small firms scheme is also applicable to flat-rate farmers  
who carry on other taxable activities which are regarded as  
constituting a separate undertaking.
2. Scope
The list of agricultural and forestry activities given in Section  
24(2) of the German Law is fairly wide, but does not include all the  
activities listed in Annex A to the Sixth Directive.

- 24 -
Stock farming is not considered to be an agricultural activity  
unless the stock farmer rents or owns a certain number of hectares per 
head of stock.
All agricultural services are subject to the flat-rate scheme.
Since 1 January 1982 companies with legal status which carry on an  
agricultural activity have been excluded from the flat-rate scheme.
Subsidiary, commercial or processing activities are subject to the  
flat-rate soheme if they are an extension of agricultural activity. The  
essential criterion is that the products must come from the farm itself.  
Commercial activities are regarded as subsidiary if they represent no  
more than 40 % of the farm's turnover.
In the vast majority of oases, the rate applicable to sales is the  
same as for the flat-rate compensation of VAT on inputs (7»5 $)» s° that  
the flat-rate farmer has nothing to repay to the Treasury. The same  
applies to forestry farmers for whom the rate is 5 $·
However, for certain sawmill produots (such as beams, deals and  
planks) and for beverages, other than exports, VAT on outputs is 13 $  
whereaB the flat^rate of VAT which is deductible is 7*5 $ for these  
products. The farmer must therefore pay the Treasury the difference,
i.e. 5»5 $·
Under the German flat-rate compensation scheme, the compensation  
percentage is added to the sale price, whether the customer is a taxable 
person or not.
On the other hand, German legislation restricts the right to invoice  
this compensation on exports to the supply of two specific categories of  
specially designated products: certain sawmill products (beams, deals and  
planks) and beverages (wine, spirits, fruit and vegetable juices).
The disposal of goods which have been used for farming purposes  
comes under the flat-rate scheme for farmers.

- 25 -
3. Amount and machinery of flat-rate compensation
A farmer operating an agricultural or forestry undertaking is  
regarded as a taxable person who passes on VAT in the normal way in  
the price of the agricultural goods and services he supplies at  
compensation rates which vary according to the nature of the goods.  
However, he is authorized to pass on VAT on exports only in a few  
oases (see above). In this way he is supposed to recover the VAT on  
his inputs at a flat-rate which is set at a fixed percentage of the  
value of the agricultural product or service supplied. With two  
exceptions (certain sawmill products and beverages), the rate is  
identical to the VAT on outputs.So after this theoretical compensation  
has been made, the flat-rate farmer has nothing to pay to the Treasury.
At the procedural level, the farmer is issued a receipt, showing 
the VAT, by those of his customers who are taxable persons. Only  
farmers who have a balance to pay (see above) are required to submit  
returns, on which the percentage corresponding to the agricultural  
produots and services concerned (7«5 % at present) is entered as  
deductible VAT on inputs.

- 26 -
BELGIUM
Section 57 of the Law of 27 December 1977
Royal Implementing Order No 22 of 20 July 1977 (Articles 1, 2 and 3)
1. Structure of the Belgian flat-rate scheme
The Belgian flat-rate scheme for farmers provides for the refund of  
VAT on inputs which is calculated as a flat rate by applying a specific 
percentage to the turnover resulting from the farmer's transactions with  
taxable persons. This refund is made by those of the farmer's customers  
who are taxable persons.
The flat-rate scheme is the de jure scheme for all agricultural acti­
vities. Flat-rate farmers may opt for the normal tax scheme but not for  
the special scheme for small undertakings (equalization tax, flat-rate  
amounts). The option applies for a minimum of three years.
The special flat-rate scheme (Article 56(1) of the VAT Code) may, however,  
be applied to flat-rate farmers who engage in another taxable activity.
2. Scope
The flat-rate VAT scheme for farmers applies to general farmers, vege­
table growers, nursery gardeners, horticulturists, wine  
growers, stock farmers, poultry farmers (excluding bird breeders), rabbit  
farmers and beekeepers, who :
.  produce agricultural products, or  
.  subject such products to primary processing, or  
supply agricultural services.
It does not, however, apply to the following :
- supplies of goods at markets ;
retail supplies of goods (whether door-to-door or on premises specially  
licensed for retail sales) ;
- supplies of goods, and services in respect of goods, not subject to the  
6 % rate (flowers, ornamental plants, saddle horses), except supplies
of such goods to auctioneering establishments recognized by the Ministry  
of Agriculture and set up by cooperative producer groups.
It should be noted that the disposal of goods which have been used for  
farming purposes is subject to the special flat-rate scheme for farmers  
(exempt from payment of VAT) but is not eligible for flat-rate compensation.

-  2 7  -
In practice, therefore, such goods are exempt from tax on resale.
As the only condition which must be met for a farmer to claim a re­
fund is that his customer must be a taxable person who makes VAT returns, he  
may not, in addition, obtain refunds on direct export transactions even if  
his foreign customer is a taxable person.
3. Amount and machinery of flat-rate compensation
The customer, provided he is a taxable person required to make VAT returns, pays to tne flat-rate
agricultural or forestry farmer the flat-rate percentage corresponding to  
the amount of VAT on inputs paid by the farmer. This compensation is  
deductible from the VAT owed by the customer on his own taxable transactions.
The amount of VAT on inputs which is refunded to the farmer in this way  
is fixed at:
. 2 $ of the value of sales of wood;
. 6 % of the value of other supplies of goods and services.
Procedural arrangements are the responsibility of the taxable customer,  
who is required to issue to the fanner a document, made out in duplicate,  
containing the names and addresses of both parties, the date of the document  
and its serial number in the purchases journal, the date of supply, the  
nature and quality of the product or service, the net price, the flat rate  
and the amount of refund to the fanner. This dooument is countersigned by  
the farmer who returns one copy to his customer.
The farmer may, however, issue an invoice containing the same  
information, and this relieves his customer of the obligation to issue the  
above document.
The taxable customer is also required, when he submits his return  
covering the period in which the supply was made, to pay any difference  
between the VAT due at the rate applicable to the transaction and the rate  
of tax refunded to the farmer. This difference, together with the refund,  
is deductible from the VAT due on his own taxable transactions.
A farmer, part of whose activities are subject to the normal VAT  
scheme, must supply himself and calculate the refund at the flat rate as  
if he himself were a taxable customer. This tax will be deductible from 
the VAT due on transactions subject to the normal VAT scheme.

PRANCE
Articles 298 c and 298 d of the General Tax Code
Articles 26l to 267 a of Annex II and Article 98 a of“  Annex III
to the General Tax Code
. Structure of the French flat-rate scheme
The French flat-rate compensation scheme provides for direct  
refunds by the Treasury of an amount of VAT on inputs which is equal  
to flat-rate percentages of supplies to customers liable to value added  
tax, at rates varying hy type of product.
The flat-rate scheme is a de .jure scheme restricted to a certain  
number of farmers. Flat-rate farmers may opt for the simplified VAT  
scheme for farmers, which is the normal scheme applicable to non-agri-  
cultural undertakings, with a number of amendments designed to further  
simplify the colleotion of VAT on agricultural supplies (abolition of  
the one-month waiting period before deduction of VAT on inputs, annual  
returns, payment of VAT in quarterly instalments, chargeable event to  
be the receipt of payment).
There are two kinds of option, which differ in scope:
. the restricted option for the simplified VAT scheme for farmers which 
covers agricultural activities with the exception of sales of animals  
for slaughter}
. the general option which covers all the farmer's agricultural 
activities.
These options apply for tiiree years, tacitly renewabxe for further  
five-year periods.
Flat-rate farmers may also opt to pay tax under the normal VAT  
scheme.
When they opt for one or other VAT scheme, they are not eligible  
for the exemption or graduated tax relief arrangements for small under­
takings. There is a specific exemption and graduated tax relief scheme  
for farmers liable to VAT under the simplified agricultural scheme,  
but the ceilings are so low (FF 10 000 in annual turnover to qualify  
for exemption, and FF 17 000 for graduated tax relief) that therefore  
has fallen into disuse.

- 29 -
2. Scope
The flat-rate scheme for farmers does not apply to certain farmers  
who engage in commercial or industrial activities (processing of  
products not derived from their own farms, or retail sales to commercial  
premises), to livestock dealers or butchers, or to large cattle-breeders.
Save for the exceptions listed above, it applies to:
. agricultural products sold to taxable persons or for export)
. animals for slaughter sold for export or to a taxable person for  
slaughter, or to a taxable person who purchases them for resale, or  
to another flat-rate farmer.
The following are not eligible for the flat-rate refund:
. sales to private individuals;
. all services, even of an agricultural nature)
.  contract work (pruning, harvesting, etc).
Plat-rate compensation is based on sales both within Prance and for  
export. The consideration taken as a basis for calculating compensation  
percentages is not the price charged for slaughter animals where this  
exceeds their open market meat value. In suoh cases the price is fixed  
by Order.
The resale of used capital goods by the farmer is exempt from VAT

as it is for other industrial or commercial users. However, there  
is no provision for repayment of part of the VAT on inputs refunded  
at a flat rate in the event of resale of oapital goods within five years  
of purchase.
Amount and machinery of flat-rate compensation
The Treasury refunds flat-rate farmers at the rate of:
- 4.70 % for sales of eggs, poultry and pigs marketed through producer groups
- 3.50 % for sales of eggs, poultry and pigs marketed otherwise ;
- 2.90 % for sales of wines, fruit and vegetables, horticultural and  
nursery products;
- 2.40 % for sales of other products.
Flat-rate compensation also applies to sales of slaughter animals  
even by one flat-rate farmer to another. It must be pointed out that in  
such cases the purchaser (the breeder) retrocedes his right to compen­
sation to the seller (the rearer) since he must deduct purchases made  
from another farmer from the basis used to calculate the flat-rate  
compensation percentages.
At the procedural level, flat-rate farmers must declare their 
receipts from exports or from taxable persons in annual returns,  
attaching the export documents and the annual certificates from their  
taxable customers.
At the time of each transaction customers must also supply the  
flat-rate farmer with a certificate of purchase containing the name,  
occupation and address of the purchaser, the name and address of the  
farmer, and the date, nature and value of the purchase.

IRELAND
Sections 8 (3) and 9 ~ Section 12A - Seotion 17 (2) and
Fifth Schedule to the 1972 Act
1. General structure of the Irish flat-rate scheme
Irish legislation formally describes farmers as non-taxable 
persons. In fact this is a terminological nicety since the provisions 
in force describe the special flat-rate compensation scheme laid down  
in the Sixth Directive. 1
The Irish flat-rate scheme for farmers provides for VAT on 
inputs (equivalent to a flat-rate percentage of turnover) to be re­
funded by their customers liable to tax.
This scheme is the de .lure scheme for all farmers.
Flat-rate farmers may opt to pay tax under the normal scheme. If  
so, they do not qualify for the exemption scheme for small undertakings.
If flat-rate farmers engage in other taxable activities in  
addition to farming, they qualify for a special exemption soheme for  
those activities, provided that their annual turnover does not exceed  
fclr 15 000.
Flat-rate fgunners are expressly exempt from VAT on the resale of  
capital goods used on their fgunn.
2. Scope
This special scheme applies to farmers who cgtrry on the activities  
specified in the Fifth Schedule to the Irish Value-Added Tgix Act (which  
reproduces Annexes A gind B to the Sixth Directive, viz: orop production,  
stook farming together with cultivation, forestry, fisheries, agri­
cultural services).
The processing of products from the production of the flat—rate  
fanner by means normally employed in agricultural undertakings is also  
covered by the flat-rate compensation scheme.

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It should be noted that under this system of refunds by all  
purchasers, export sales may give rise to flat—rate compensation as  
well as sales for final consumption.
3. Amount and machinery of flat-rate compensation
The flat-rate farmer must issue his customers, whether taxable  
persons or not, with an invoice showing a flat-rate compensation equal  
to l.S % of the value of the goods sold or servioes supplied. If the  
oustomer is a taxable person, he may deduct this compensation from the  
tax chargeable to him.
The Irish legislator considered that it was not possible to  
prohibit flat-rate farmers from invoicing to any customer a supplement  
corresponding to the amount of input tax which they themselves were 
unable to deduct. However, the scope of the implementing provisions is  
restricted to invoices issued to taxable persons.
The invoice may take the form of a settlement voucher issued by  
the taxable person to whom the goods or services are supplied.
The invoice must give the names and addresses of the farmer and  
the taxable customer, the latter's registration number, the date of the  
invoice and of the supply of goods, a description of the goods, the  
quantity, and the rate and amount of compensation. It must be signed  
by the person who issued it.
In theory, the flat-rate farmer may issue a similar invoice,  
showing the amount of flat-rate compensation, for sales to non-taxable  
persons.

ITALY
Article 34 of Presidential Decree No 633 of 26 October 1972 -  
Deoree Law No 288 of 3 July 1980
1. Struoture of the Italian flat-rate scheme
The flat-rate scheme for farmers is designed to offset VAT on  
inputs at a flat rate by applying a percentage increase to the selling  
price of the agricultural product·.
In general, the flat-rate farmer has the same obligations as a  
taxable person under the normal scheme: he must issue invoices and  
record his sales and purchases. However, small farmers whose turnover  
in the previous year did not exceed LIT 10 000 000 are exempt from  
these requirements. Instead, their taxable customers are required to  
issue the invoioe and supply a oopy to the farmer, who must retain it.
The flat-rate scheme is the de .jure scheme for all farmers.  
Nevertheless, flat-rate farmers may exeroise two options:
. they may opt at the end of a calendar year for refund of the VAT on  
inputs actually paid during that year}
. they may opt before 31 January for application of the normal VAT 
scheme for the current calendar year} this option operates for two  
years following that in which it was exercised.
They are not eligible for the flat-rate deduction scheme for small  
undertakings.
2. Scope
The flat-rate scheme for farmers applies to farmers engaged in  
cultivation, forestry, stook farming and the related activities of  
processing and selling farm products normally deriving from agri­
cultural production, fresh-water fishing, fish farming, mussel breeding,  
oyster breeding and frog farming.
Even where not involving cultivation.

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To be eligible for this scheme, flat-rate farmers must produce agricul­
tural or fishery products that appear on a list which includes practically  
all the products set out in Annex A to the Sixth Directive. Processing,  
even of the farmer's own products, and the supply of all agricultural  
services are excluded from the flat-rate scheme.
Flat-rate farmers who engage in other activities not covered by  
the flat-rate scheme must deolare them separately. They must calculate  
a ratio to determine the VAT which is deductible from their purchases.
Cooperatives which sell or prooess products are normally regarded  
as agents and are taxed on their commissions, exoept where the cooperative  
opts to be regarded as a purchaser and reseller, in which cane  
compensation is invoiced by the farmer to the cooperative. A flat-rate  
farmer may pass on the compensation percentage in all his sales,  
including those to non-taxable persons. When he sells goods for export,  
he is entitled to offset his input tax by passing it on to the foreign  
purchaser.
There are no specific rules on the disposal of goods which have
been used for farming purposes. The general rules on the resale of used
capital goods therefore apply; in other words a flat-rate farmer is, in
theory, liable for VAT on such disposals but there is no declaration or  
payment requirement.
3. Amount and machinery of flat-rate compensation
Flat-rate farmers are paid a flat-rate compensation, which is  
supposed to equal the VAT on their inputs, by their customers, whether  
or not they are taxable persons.
The percentages applied to the selling price vary according to  
the product involved and are as follows:
. 2 $ for cereals, and
for oertain products of fresh-water fishing, fish farming, breeding  
of mussels, oysters and other molluscs and orustaoeans, and frog 
farming, and for unprocessed rice, fresh vegetables and pulses,  
potatoes, fresh or dried fruit, olive oil, butter, cheese, oil seeds

- 35 -
and fruits for edible oils, as well as for the other products subject  
to the flat-rate soheme not listed above or below)
. 8 % for eggs, still wines with an aloohol oonteig of less than 21  
live sheep, goats, horses, asses and mules; poultry (dead or alive),  
rabbits, pigeons, pheasants, bees, honey, beeswax, silkworm cocoons,  
sheep's or lambs' wool, or other animal hair, not carded or combed;
• 15 % for live cattle and pigs, and for fresh milk, not concentrated or  
sweetened and not put up for retail sale.
On the procedural level, flat-rate farmers are normally obliged to  
issue invoices, keep accounts, and make annual returns.
However, in the oase of small flat-rate farmers whose annual turn­
over does not exceed LIT 10 000 000, it is their customers using the  
products in their business who are required to issue invoices in  
duplicate, giving the usual details together with the flat-rate  
compensation tax for the product in question. A copy is sent to the 
flat-rate farmer who is required to retain it.

- 36 -
LUXEMBOURG
Sections 58»  59» 60 and 61 of the Law of 12 February 1979
1. Structure of the Luxembourg flat-rate scheme
The Luxembourg flat-rate scheme for farmers provides for turnover  
to be taxed at a fixed rate by applying reduced rates of VAT (2 % and 
5 %) from which is deducted an input tax fixed on a flat-rate basis at  
the same level.
The flat-rate scheme is the de .jure scheme for a number of agri­
cultural activities and services included in an exhaustive list. Flat-  
rate farmers may opt for the normal VAT scheme and this option is  
normally irrevocable unless they obtain the agreement of the authorities  
to revert to the agricultural scheme.
The special exemption and graduated tax relief scheme for small  
firms is, however, applicable to flat-rate farmers who oarry on other  
taxable activities.
2. Scope
The flat-rate VAT scheme for farmers applies to persons engaged  
in crop production, forestry, wine-growing and the growing of fruit,  
stock fanning and poultry farming, where this involves direct use of  
the land, and bee-keeping.
This scheme applies to supplies of goods and servioes by these  
farmers as follows:
. goods normally supplied by an agricultural or forestry undertaking  
including goods which have undergone processing by means normally  
employed in agriculture, with the exception of sawmill products}
. services supplied by the farmer by means normally employed on agri­
cultural or forestry undertakings.

- 37 -
The disposal of capital goods used for farming purposes is subject  
to VAT at the reduced rate of 5 $ from which is deducted a flat-rate  
input tax of the same amount. In other words the flat-rate refund scheme  
also applies to the disposal of capital goods used for farming purposes.
Horticulturists, market gardeners, flower growers, nursery  
gardeners, distillers, fish farmers and frog farmers, and producer groups  
are excluded from the flat-rate compensation soheme.
3. Amount and machinery of flat-rate compensation
Plat-rate agricultural or forestry farmers may invoice VAT on the  
goods and services they supply whether their customers are taxable  
persons or not. They then deduct the VAT on inputB which is fixed on a  
flat-rate basis at the same level.
The flat-rate compensation percentages which they may invoice are:
. 5 $ of the value of sales of agricultural products, supplies of  
agricultural or forestry services, and the disposal of used capital  
goods;
. 2 $ of the value of sales of forestry products.
These percentages are designed to equal the input tax paid by  
flat-rate farmers on their purchases and investments find to enable  
them to deduct that tax. The VAT invoiced in this way may be deducted  
from the VAT chargeable to taxable persons to whom the goods or  
services are supplied by the flat-rate farmers. If the transaction is  
for final consumption, the VAT is paid by the non-taxable person to  
whom the goods or services are supplied.
At the procedural level, a Grand-Ducal regulation exempts the 
flat-rate farmer from issuing an invoice when effecting a taxable  
transaction. In suoh cases the customer, provided that he is a taxable 
person, will issue a receipt in duplicate, one copy of which will be 
sent to the farmer. This receipt will enable the taxable person to  
deduct the tax shown on it, but the farmer may choose to issue an  
invoice including the VAT. If his customer is a taxable person, he  
will then break the price down into net price and VAT.

- 38 -
In practice, then, flat-rate farmers may systematically invoice  
VAT and deduct input tax of the same amount and are therefore able to  
recoup flat-rate compensation on supplies of goods and services for  
export.

- 39 -
NETHERLANDS
Section 27 of the Law of 28 December 1978
Articles 28 and 29 of the Ministerial Order of 29 December 1978
1. Structure of the Dutch flat-rate scheme
The Dutch flat-rate scheme for farmers provides for the refund  
of VAT on inputs - fixed as a flat-rate percentage of turnover with  
taxable persons - by taxable persons to whom goods or servioes are  
supplied.
The flat-rate soheme is the de jure scheme for all persons  
engaged in farming, stock fanning, horticulture or forestry. They may  
apply to the authorities for permission to opt for the normal tax scheme.  
That option applies for not less than five years. In that case they can­
not qualify for the special exemption scheme for small undertakings.  
However, the special scheme for small undertakings applies to flat-rate  
farmers in respect of their other taxable activities.
2. Scope
The flat-rate VAT scheme for farmers applies to persons engaged  
in general farming, stock farming together with cultivation,  
horticulture and forestry, who:
. produce agricultural goods on an exhaustive list (consisting of the  
agricultural products on the list of goods subject to the reduced  
rate of VAT); or
. supply agricultural services, i.e. services which contribute to agri­
cultural production, using their normal equipment and labour foroe.
Under the system whereby compensation is refunded by a trader  
liable to tax, only supplies of goods and services within the Member  
State may qualify for compensation. Exports by flat-rate farmers do not  
so qualify, even if the foreign purchasers are taxable persons. Cattle  
dealers may opt to be taxed under this special scheme for flat-rate  
farmers.

- 40 -
The disposal of capital goods (equipment) used in the farmer's  
business is exempt from VAT, despite the fact that sales of used goods  
by other taxable persons are subject to tax.
3. Amount and machinery of flat-rate compensation
The taxable customer (the trader under the Dutch Law) pays the  
flat-rate farmer a standard percentage of 4»71 % (including compensation 
of 4.50 io) of the gross value of the transaction over and above the cost  
of the goods or services supplied. This flat-rate compensation paid to  
the farmer offsets his inability to deduct VAT on inputs. The taxable  
customer who has paid the compensation may deduct it from his VAT bill.
At the prbcedural level, the compensation may be deducted by the
taxable customer only if he can produce a certificate from the flat-rate
farmer giving the names and addresses of both parties, the date, and a
description, the quantity, and the price of the goods or service supplied.%
This certificate is normally issued for each transaction, exoept that  
when goods are supplied to auctions or other regular purchasers, it may  
be issued annually.