The “Federal law on the taxation of agricultural and forestry properties” aims to mitigate the potentially ruinous effects of a Federal Supreme Court (of Switzerland) judgment of 2 December 2011 on farming families. Prior to this judgment, if a farmer wanted to sell part of his property as building land, he was required to pay a real estate gains tax according to cantonal law. The same rule applied in accordance with local construction law requiring the farmer to transfer his house and garden to private assets in order to keep occupying it upon his retirement. With this decision, the Federal Supreme Court behaves as though it were the legislator and invents a new income tax for the farmers. In addition to the cantonal real estate gains tax, the federal government could thus increase this capital gain by means of direct federal tax load – as income! (The federal government only recognizes this income tax, no wealth tax that – of course – would be much lower.)
Effectively, this means that a farmer or a couple looking to retire have to pay hundreds of thousands of francs in income tax for their private residence to the federal government despite not even having earned that money.
One can only hope that the National Council will find a compromise in the spring session in order for the Council of States to be prepared to correct its negative decision on 12 December 2016.
Current Concerns: Could you briefly explain the problems farmers face regarding the taxation of agricultural lots?
National Councillor Olivier Feller: On 2 December 2011, the Federal Court announced its decision to establish a previously unknown distinction between lots subject to agricultural land law and those that are not. The issue at heart is to determine how to tax the profits made when selling or transfering land from business assets to private ones. When dealing with a lot subject to land law, the real estate transfer tax continues to be applied. What is new is that if a lot is not subject to land law, the entire profit is subject to income tax. This judgment by the Federal Court had the effect of having drastically increased the debts owed from one day to the next. The Waadt canton provides a good example of this. The percentage for a real estate gains tax for a lot not subject to land law used to be 7%, if the period of ownership exceeded 24 years. Since 2 December 2011, such a lot is subject to an income tax rate of 50%, with additional AHV fees.
What led to this situation?
In accordance with the principle of the separation of power, the Federal Court is independent. Of course, I do respect its independence. The problem is that, apparently, the Federal Court did not foresee the immediate consequences of its judgment. A farmer, who wants to retire but keep living in his farmhouse at the same time, can be faced with fees of several hundred thousand francs because of his income tax, merely because
his residence is transferred from his business assets to his personal assets. This is not only unjust, but it also contradicts the legal security and predictability that is supposed to be ensured by the Federal Court. What is more is that this law came into effect immediately on 2 December 2011 without a transitional period enabling farmers to adapt to the new taxation. In return, it highlights a real institutional problem. Whenever the parliament changes taxation laws, transitional periods are usually provided. That didn’t happen in the case of this Federal Court judgment.
In April of 2016, the National Council approved a draft bill that could have enabled a return to the previous tax practice. The Council of States opposed it in December 2016. What do you make of this situation?
I was very surprised by the Council of States’ decision. On 8 December 2014, it had supported a motion brought forth by my colleague, Leo Müller, commissioning the National Council to present a legislative change to reinstate the previous tax practice. Two years later, the Council of States voted for the exact opposite, i.e. non-occurrence. What a contradiction! It is difficult to understand such a turnaround. I sense that in certain circles, there is jealousy towards the enormous support that farmers enjoy with parliament. Furthermore, the federation’s financial situation has deteriorated over the last two years. The return to the previous tax practice in no way has to do with gifting anything to the farmers, even if some like to present it that way. In reality, a return to the previous practice would prevent a “tax robbery” that, without any democratic discussion, has been enabled from one day to the other by the Federal Court’s judgment in 2011.
What other opportunities to possibly limit the negative consequences of this Federal Court judgment do you see?
This dossier will be presented to the National Council again in 2017. The Committee for Economic Affairs and Taxes is going to elaborate on this topic again in its meeting on 20February and prepare it for further discussion at the National Council’s spring session. As a French-speaking correspondent for the Committee, I will, together with others, work towards achieving a fair solution to win the majority in the National Council as well as in the Council of States. It’s not going to be easy. But in policy, only battles that are not fought are lost from the start. •
(Interview by Jean-Paul Vuilleumier)
Federal Court decision: profits from selling agricultural and forestry land were exempt until a fundamental decision of the Federal Court in 2011 of the federal direct tax (income tax) (FC 138 II 32). In 2011, the Federal Court limited this privilege to lands that are subject to the Federal Act on the rural land rights. The profits from selling reserves of building land from the assets of agriculture and forestry enterprises are fully taxable since then.
National Councillor Leo Müller issued the motion* “Taxation of agricultural and forestry land” (12.3172) with 22 co-signatories. The Federal Council was supposed to provide a draft law to the Parliament, stating that agricultural and forestry plots, when transferred from business assets to private assets as well when sold will be charged with an income tax only on the capital cost, as it was the practice before the judgment of the Federal Court 2C_22/2011 in 2 December 2011.
Federal Council requests to reject the motion.
National Council supports the motion.
Council of States supports the motion.
Federal Council adopts its message to the Federal act on the taxation of agricultural and forestry land (16.031) and thus implements the motion which was transferred by the Parliament: all real estate of assets from an agricultural or forestry enterprise should benefit from a privileged taxation, as it was until 2011. He renounces to recommend the adoption of the proposal to the Parliament.
National Council follows its Advisory Committee and accepts the amendment as the First Chamber.
Council of States follows its Advisory Commission and rejects the law amendment as the Second Chamber.
Spring session 2017:
The National Council will discuss it again.
* A motion instructs the Federal Council to submit a bill to the Federal Assembly or to take a certain measure. Motions can be submitted by the majority of a committee and, during a session, by a parliamentary group or by an Assembly member. Motions must be accepted by both Councils.
(Translation Current Concerns)
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