- On 2 April Order HFP/335/2018 was published, lowering for 2017 the net-yield indices of several farming and livestock activities.
- It affects those taxed under objective estimation (modules) in personal income tax and applies to the 2017 return, whose filing season opens on 4 April.
- Farmers taxed by modules should check their activity and area in the order’s annex before filing.
The Official State Gazette published on 2 April 2018 Order HFP/335/2018 of 28 March, which reduces, for the 2017 tax period, the net-yield indices applicable under the objective estimation method of personal income tax to farming and livestock activities affected by exceptional circumstances. It takes effect the day after publication.
The measure rests on the tax regulation, which allows the finance minister to authorise reductions when fires, floods or other exceptional circumstances disrupt the activities of a sector or area. The Ministry of Agriculture issued a report identifying those circumstances during 2017, and the order groups the reductions by region, province and activity.
How modules work
Objective estimation, known as “modules”, lets certain businesspeople and professionals calculate the profit of their activity by applying parameters set by the administration, rather than from their actual income and expenses. For farming and livestock activities, a net-yield index is applied to the volume of income, and the result is the base on which tax is paid.
The lower the index, the lower the profit attributed and, therefore, the income taxed. Its advantage is simplicity, but it has a drawback: if the year goes badly because of external circumstances, the module may not reflect it. That is why the regulation provides for exceptional reductions when those circumstances objectively affect a sector or area. It is important to remember that the module method can be waived, and that the waiver has effects over several tax years, so it should not be decided lightly.
What this order reduces
The annex lists reductions for all the autonomous communities and others specific to particular provinces and municipalities. For example, general indices are set at 0.13 for beekeeping, 0.16 for dairy cattle, 0.18 for cereals and pulses, and 0.13 for potatoes. There are lower indices in certain areas, and others specific to crops such as almonds or wine grapes.
The annex indices replace those set generally for 2017 by the order that implemented the method that year. A holding must check whether its activity, province and municipality appear in the annex, because the reduction applies only to the territories and activities expressly included. If a holding is in an area not listed in the annex, it cannot apply the reduction, even if it suffered similar circumstances; the order benefits only the areas it expressly includes.
What to review
The 2017 income tax season opens on 4 April and the filing deadline ends on 2 July. Those taxed by modules in farming activities, or their adviser, should check that the assistance software applies the reduced indices that correspond and that the return is not filed with the old indices by default.
It is also worth keeping documentation that supports the volume of income and the area where the activity takes place, in case the administration asks for it. If an instalment payment was already made with the earlier indices, the adjustment is reflected in the annual return. This information is general; your tax adviser can apply it to your case. Holdings with farm insurance, public aid or loss declarations may have documentation that helps prove the activity and the circumstances, and it is worth locating it before filing.
A reduced module only helps those who check that it applies to them.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
