Two decisions from the National Tax Tribunal emphasise the importance of expert opinions in tax cases. Both cases concerned deductions for losses in agricultural businesses and an assessment of whether the agricultural businesses could be considered commercial enterprises.
When assessing whether a part-time farm is considered to be run as a business for tax purposes, emphasis is placed on, among other things, whether the actual operation of the property, based on a technical agricultural standard, is customary and justifiable, and whether the operation is aimed at a reasonable operating result. For stud farms, the assessment emphasises, among other things, whether the business is run in a technically sound manner, whether the number of horses enables rational operation and whether the business is profitable or has the prospect of achieving a profit within a short number of years.
The assessment of whether agricultural businesses and stud farms are run on a commercial basis is thus based on specific judgements, and the Tax Agency generally tends to make a very restrictive qualification of the commercial status.
The two new decisions from the National Tax Tribunal highlight the Danish Tax Agency’s restrictive approach and emphasise the value of an expert assessment through expert reports.
In a decision (case no. 15-0810659), the National Tax Tribunal considered whether a part-time farm with crop cultivation and rental of a slurry tank was to be considered a commercial activity. The tax authorities were of the opinion that the operation should be divided into several branches of operation with the effect that the profitable activity should be taxed, while there was no right to deduction for the part of the agricultural activity that generated losses. In the decision, the court found, on the basis of the stated activities and the assessor’s assessment, that there was no basis for separating the activities into several businesses, as there was a natural connection between the rental of the slurry tank and the spreading of the slurry on the farm’s fields with plant cultivation. In addition, the court found, based on the expert opinion, that the farm, according to its size and layout, was run in an agriculturally sound manner and that there was a prospect of an operating profit of DKK 0 or a profit after operating activities of DKK 0. 0 or a profit after operating depreciation.
In a similar decision from the National Tax Tribunal (case no. 15-0765787), a decision was made on whether the activities in a partnership were related to such an extent that the activities had to be considered to constitute a single business, namely the operation of a horse centre. On the basis of the inspection and assessment report on the operation of the business, a majority found that the partnership had a future prospect of a result of DKK 0 or more after operational depreciation. 0 or more after operational depreciation, and that the agricultural business was thus operated commercially for tax purposes in the years in question.
The decisions clarify that expert reports can be decisive for the outcome in tax cases and that it can be an advantage to make use of expert opinions already in the administrative appeal instance.
The Tax Administration Act contains a special legal basis for obtaining the National Tax Tribunal’s acceptance of a request for an inspection and assessment, even though the case is not pending before the courts.
The cases before the appeal body are covered by the rules on reimbursement of costs, and it is also possible in certain cases to obtain an advance commitment from the Tax Appeals Board and the Tax Administration for full reimbursement of costs in cases with expert reports, so that the evidentiary part does not become a significantly more expensive element for the complainant in a tax case.
Bachmann/Partners is currently conducting several expert report cases before the National Tax Tribunal and therefore has extensive experience with this type of cases and the use of expert opinions as evidence in tax cases.
For further information, please contact Christian Bachmann on tel. +45 30 30 45 21 / chb@bachmann-partners.dk, Ann Rask Vang on tel. +45 20 94 78 21 / ava@bachmann-partners.dk or Peter Hansen on tel. +45 40 32 35 35 35 / pha@bachmann-partners.dk.