Phosphate rights: the facts at a glance (part 1)

De trading in options on phosphate rights is currently taking place. There is still a lot of uncertainty among dairy farmers about the introduction of the phosphate rights system. A number of questions and answers at a glance. 

Why are phosphate duties introduced?
The phosphate rights system is being introduced to limit dairy farming and not exceed the phosphate ceiling set by Brussels. With the abolition of the milk quota, dairy farms have grown considerably, which means that the phosphate ceiling is largely exceeded.

The system of phosphate rights is intended to prevent dairy farming from producing more phosphate than agreed with Brussels. This concerns 84,9 million kilos of phosphate. The cabinet also wants sectoral phosphate ceilings laid down in law.

When will dairy farmers have to deal with phosphate rights?
Phosphate rights are required from January 1, 2018 for keeping dairy cattle. The number of rights indicates how much animal manure may be produced with dairy cattle in 1 calendar year. In addition, 1 phosphate right corresponds to 1 kilo of phosphate produced by dairy cattle. The phosphate rights are necessary for keeping dairy cattle (category 100) and for young cattle (category 101 and 102). This also includes young cattle for beef farming.

How does the allocation of phosphate rights work?
From the moment that the phosphate rights system comes into effect, no more phosphate may be produced than the number of allowances allocated. These rights are allocated on the basis of the number of animals present on the company on the reference date of July 2, 2015. For companies that are not land-based, a generic discount of 8,3% is applied to the allocation of phosphate rights.

Can phosphate rights be written off?
That is not known yet. The Association for Accountants and Tax Advisors (VLB) advocates the write-off of phosphate rights. It has become clear that the rights, like other production rights, are seen as a business asset. Purchased rights must be capitalized at the value on the company balance sheet.

Once an end date has been set, the depreciability of the phosphate rights also comes into view. It is still uncertain when that clarity will come. Discussions are still taking place about the depreciability of phosphate rights in the politics. For example, pig and poultry duties may be written off.

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How can a dairy farmer obtain more phosphate rights?
The phosphate rights are tradable. When purchasing or selling rights, a skimming of 10% applies. Stoppers can offer their rights for sale. It is not possible to purchase more phosphate rights than are offered.

Dairy farmers who had released animals on July 2, 2015 can submit a request for an increase in the number of phosphate rights after January 1, 2018. However, this is only possible if the collector gives permission for a reduction of his phosphate rights.

Do I have to pay tax on the sale of phosphate rights?
When selling rights, the seller must pay tax on the hidden reserves in the phosphate rights. The acquired rights are listed at 0 on the company balance sheet and are sold for a higher value. The difference between the sales value and the book value is taxable.

How does the transfer of phosphate rights take place?
Most transfers are based on business transfers. A partnership of at least 3 years can also be entered into between the buyer and the seller, in order to 'pass on' the tax claim for tax purposes. According to Alice Fisher, advisor at Countus, such constructions must be appropriate and both parties must be aware of the risks. For example, the price cannot yet be determined, but it can already be determined how that price is determined.

When are purchased rights activated?
Purchased rights are capitalized at the value on the company balance sheet. In principle, no need to be granted phosphate rights cannot be activated, as these were obtained 'for nothing'. In certain cases it may be interesting to value the acquired phosphate rights, for example to prevent loss evaporation or when depreciation of phosphate rights is possible in the future.

This was the first part of this three-part series. The second part will be online on Monday, October 23, with attention to the following questions, among others: how do the phosphate rights work for land-based companies, how are the rights distributed and what about the emergency regulations?