In practice, the forestry exemption is not applied very often. A ruling on this exemption therefore tends to attract attention.
Forestry Exemption
This concerns an exemption from profit tax. Self-employed individuals whose profits are subject to income tax and legal entities that pay corporation tax may be eligible for the exemption. They must, however, operate a forestry business. A forestry business is a business focused on the conservation of a forest.
Where the conditions are met, the forestry exemption applies. The exemption may be waived upon request. This may be of interest, for example, where the forestry business is operating at a loss and those losses can be set off against other profits. This is because the forestry business may form part of a company that also carries out other activities. The entrepreneur is then bound by the decision not to apply the forestry exemption for at least 10 years.
Forest
What constitutes a forest? From a tax perspective, the definition is quite broad. Trees planted along roadsides and a small group of trees surrounding a farm are examples of what can already be regarded as a (for tax purposes) woodland. However, a forestry business only exists if the woodland is managed and maintained.
At Court of Appeal of The Hague The forestry exemption is discussed. This case concerns a private limited company that sells prunings from the Taxus baccata (yew) to the pharmaceutical industry, which processes the prunings into cancer medicines.
The Tax and Customs Administration takes the view that this does not constitute a woodland. As the trees are pruned annually, they do not grow taller than approximately 90 cm (if left to grow unchecked, these trees would reach a height of well over 12 metres). According to the inspector, the plot contains only shrubs, not trees. However, the Court of Appeal ruled that the fact that the trees are kept short by pruning is not a reason to deny the forestry exemption.
The BV also complies with the conservation requirement. Although the trees do not grow taller than 90 cm, they are only felled as part of normal forest management (for example, when a tree is diseased), and replanting takes place in such cases. The profit made from the sale of the prunings is therefore exempt from corporation tax.