French pork farmers accuse Germany of VAT fraud

Most male piglets are still surgically castrated, despite the existence of an effective vaccine against boar taint. [Heather Paul/Flickr]

The French pork industry has lodged a complaint to the European Commission, accusing German farmers of VAT fraud worth €250 million. EURACTIV France reports.

French pork farmers do not beat around the bush. It has levelled accusations of large-scale VAT fraud at its German competitors through a newly-assembled group, which aims to “fight agricultural tax dumping in Europe”. The group filed a complaint with the European Commission last December, after a long and thorough investigation into the German pork industry.

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The competitiveness gap between the two countries has widened in recent years, with the number of French pork farms collapsing from 3,500 in 2005 to 2,700 in 2015. Over the same period, Germany’s overall production grew by 20%, and by 40% in the two Länder that were the main focus of the French study: North Rhine-Westphalia and lower Saxony.

Behind this new balance of production is a complex set of circumstances. German farmers take advantage of lower labour costs to make larger profits, and the development of the methane production from vegetable waste has also helped to bring down the cost of energy in Germany.

Tax and social dumping

But French pork producers also suspect Germany of deliberately practicing large-scale tax dumping, by allowing producers not to pay part of the VAT for which they should be liable.

This works in two ways. The first, and the simplest, is in the application of VAT: German producers are allowed to use a flat rate VAT scheme, where they pay per animal. In France this scheme is only applicable to businesses with a sales revenue of less than €76,000, but since no French pork producers have such a low turnover, the whole sector finds itself at a disadvantage to its German counterpart. German producers gain an advantage of more than €1 per pig from this scheme, by cutting VAT from 10.7% to 9.4%, according to the anti-fiscal dumping group.

Yet under the rules this systematic application of the scheme should not be allowed in Germany. “The aim of the directive that authorised this package was to free small companies that can’t afford to set up complicated accounts from bureaucratic constraints. But what we actually see is aggressive tax planning,” said Gérard Viel, the president of the French livestock and meat Coop.

Several companies for a single farm

But other forms of legal acrobatics, encouraged by local chambers of commerce in the regions concerned, help companies find and exploit VAT loopholes. The French pork producers observed that German farms are often made up of two or three different legal structures.

“There is a livestock company, which sells to a different marketing body, or yet another structure … they run rings around the VAT collectors,” said Michel Bloch, the president of the Breton Meat Producers’ Union (UGPVB).

The newly formed group, which consists of the UGPVB, the French co-operatives, the Breton Regional Pork Committee and the National Pork Federation, has based its complaint on figures from the Farm Accountancy Data Network (FADN).

Germany was the only country where farms posted a positive VAT balance over the period 2008-2012. And most farms, especially the smaller ones, pay only a small amount of that tax.

“Unacceptable” dumping

“This European distortion has to stop! It wouldn’t be such a problem if it was the new member states. But from Germany, which is a founding member of the EU, this is unacceptable,” said Viel.

The group estimates that German pork producers have received €250 million of tax breaks since 2008, which they compare to state aid.

Contacted by EURACTIV, the European Commission confirmed that it had received the complaint, but would not state whether it had launched an investigation. The danger of setting a precedent with this kind of inquiry is that it could open the flood gates to similar cases.

The French automotive industry also accuses Germany of turning a blind eye to VAT fraud, particularly on second hand cars, in order to support its sector.

The European Commission will reopen its inquiries into VAT fraud in general, and in the spring it will present new proposals against this fraud, which costs the European states €168 billion per year.

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