A man is a partner in a general partnership (VOF) engaged in arable farming. The tax inspector considers the business to be too small and classifies the share as capital in Box 3. He aggregates the results over fourteen years and arrives at a negative total. The Court of Appeal rejects this, as the source must be assessed on an annual basis and not over a series of years. The general partnership retains its business.
From livestock farming to arable farming
Following their father’s death, the three children took over his business in 2009. However, they switched from livestock farming to arable farming. Since 2019, the partnership has been leasing just over two hectares for approximately €3,335 per year and selling grass for €2,750, plus €960 for fertiliser. Following the loss-making year of 2020, profits of €924, €1,511 and €718 were recorded.
Three demands, one point of contention
A source of income only exists if a person participates in economic activity, intends to derive a benefit, and can reasonably expect to derive that benefit. The first two points are not in dispute. The issue concerns only the third requirement: the objective expectation of a benefit. This does not require a profitable business, a minimum scale or a specific rate of return. It is sufficient that a benefit can reasonably be expected, however modest it may be. Profits of a few hundred euros are still profits.
The burden of proof is reversed
Since 2003, the taxpayer has declared the share as business profit. Until 2019, the tax inspector accepted these returns. Anyone who challenges this after fifteen years must themselves demonstrate that the source of income has ceased to exist. To this end, the tax inspector adds up the taxpayer’s adjusted results over a period of fourteen years. The tax inspector excludes the leasehold income: this derives from land which the general partnership no longer cultivates itself and which, according to the ‘Pottenbakkers’ judgement, remains business assets but says nothing about the activities. According to the tax inspector, the law requires a positive total profit.
You must not add them together
The court does not agree with this. The requirement for an overall profit is based on an incorrect interpretation of the law. In principle, the assessment is carried out on an annual basis. The period chosen is too long and arbitrary, and within it, nine profitable years alternate with five loss-making years. Grass and fertiliser subsidies count as turnover, and even without the lease, the results are not so meagre as to negate the prospect of a profit. By its very nature, arable farming quickly develops into a business and, by its very nature, produces fluctuating results. A run of poor years therefore says little about the year under consideration. The area under cultivation is not too small for a viable business.