Court: Farmer's Home-Distilled Fruit Alcohol Falls Outside Simplified VAT Scheme
A German court ruled that untreatable-for-drinking raw alcohol, made on a farm from the farmer's own fruit, is not covered by the simplified VAT scheme for farms. A still is not normal farm equipment.
A court in Germany has ruled in a dispute over value-added tax (VAT) involving a farmer who produced raw alcohol from fruit grown on his own farm. The decision matters for farms that add processing to their core activity, because it clarifies which products qualify for agricultural tax relief.
The simplified scheme
Farms in Germany can use a simplified VAT arrangement under which tax is calculated using average rates (Section 24 of the German VAT Act). However, it applies only to typical agricultural products. Alcoholic goods of any kind are excluded, even if the product is undrinkable raw alcohol that the farmer made in his own distillery from fruit he grew himself.
What counts as an agricultural service
Under the EU VAT directive, agricultural services are those provided by a farmer using his own labour or the normal equipment of his farm, and that normally contribute to agricultural production. They include cultivation, harvesting, threshing, pressing, picking, sowing and planting, as well as packing and preparation such as drying, cleaning, crushing, disinfecting and ensiling. In Germany, storage of farm products is also included.
The Court of Justice of the European Union stresses that the rule is an exception and must therefore be interpreted narrowly and uniformly across the Union. To secure this, EU lawmakers defined terms including "agricultural producer", "agricultural products" and "agricultural services".
The court's conclusion
Extracting raw alcohol from fruit mash requires a distilling apparatus, or still. The court's panel takes the view that this is not equipment normally used on a farm. It also found that distillation is not an agricultural service.
