Regulation (EC) No 138/2004 of the European Parliament and of the Council of 5 December 2003 on the economic accounts for agriculture in the Community (Text with EEA relevance)

• 2.128. The size of the sums spent on this maintenance is in no way a criterion for determining whether a service creates an asset or represents current maintenance, since in the case of high-value capital items, even services for current maintenance may be very costly (cf. 2.109(e)). Strictly speaking, the allocation of services performed on existing fixed capital goods either to the ‘current maintenance’ or ‘GFCF’ category should be determined by the interval which will elapse before the service has to be repeated, e.g. the replacement of parts which normally wear out within one year, such as the tyres of a truck, counts as current maintenance, whereas the replacement of an engine constitutes fixed capital formation, not because the value is higher but because an engine does not normally have to be replaced annually but only after several years. Recording a service of this kind under the assets heading (i.e. treatment as fixed capital formation and not as current maintenance) makes it possible to distribute the value uniformly over the entire period of use through the device of fixed capital consumption.

• 2.129. The 2008 SNA specifies that improvements made to fixed assets should be determined either by the magnitude of the changes in the characteristics of the fixed assets — i.e. by major changes in their size, shape, performance, capacity or anticipated service life — or by the fact that improvements are not the kinds of changes that are observed to take place routinely in other fixed assets of the same kind, as part of ordinary maintenance and repair programmes (cf. 2008 SNA,10.43 and 10.46).

(e) Disposals

• 2.130. Disposals of fixed assets comprise the sale, demolition, scrapping or destruction of fixed assets by their owner, or their surrender in barter or as capital transfers in kind (cf. ESA 2010, 3.125 (b) and 3.126). These disposals should normally lead to a change in ownership and have a direct economic purpose (therefore fixed assets which are demolished, scrapped or destroyed by their owner in order to be put to no further economic use are not included in these disposals) (cf. 2008 SNA, 10.38). However, some disposals may be kept within the same institutional unit, as in the case of animals slaughtered by a farmer and consumed by his family.

(f) Valuation of gross fixed capital formation

• 2.131. GFCF is valued at purchaser prices (including the costs of transferring ownership, installation and other transfer charges) or, when produced on own account, it is valued at the basic prices of similar fixed assets (the basic price can be obtained from the sum of the costs incurred). Disposals should be recorded at the sales price, which should correspond to the purchaser price less the costs incurred in the transfer of ownership of assets, installation and transfer charges (cf. 2.130).

(g) Costs of transfer of ownership

• 2.132. The costs of transfer of ownership of assets constitute GFCF by the acquirer, even if some of the costs are paid by the seller. They comprise the expenditure incurred in order to take possession of the assets (installation and transport charges, etc.), fees and commissions of intermediaries (solicitors, experts, etc.) and taxes to be paid on intermediary services used in the transfer of ownership of assets.

• 2.133. The GFCF of the acquirer comprises the value of the goods acquired (exclusive of transfer costs) plus the total transfer costs involved in the acquisition. Conversely, the GFCF of the seller only includes the value of the goods sold (exclusive of transfer costs) ([^E0024]). In the case of non-produced assets (such as land, or patented assets such as production rights) which are not included in GFCF, these costs must be separated from the acquisition/disposal of these assets and recorded under a different heading as GFCF of the acquirer.

(h) GFCF and change in the value of assets

• 2.134. The balance sheet, which provides an itemised list of the values of the assets held and commitments entered into, provides information on the different components of the change in the value of assets.  As defined in the balance sheets (cf. ESA 2010, 7.12 and 7.13) the change in the value of an asset between the end and beginning of an accounting period can be described as follows:

Value of assets at the end of the accounting period
– Value of assets at the beginning of the accounting period =	GFCF
	– Consumption of fixed capital
	+ Other volume changes
	+ Nominal holding gains (net of losses)

• 2.135. Nominal holding gains (net of losses) correspond to holding gains (net of losses) accumulated during the period considered and resulting from a change in the price of the asset whose economic and physical (quantitative and qualitative) characteristics remain unchanged over the period concerned. These changes are recorded in the revaluation account.

• 2.136. The other changes in the volume of assets are flows which make it possible to record the discovery, deterioration or depletion of natural assets as well as the consequences of exceptional events which may modify the benefit drawn from assets. As far as the assets of the agricultural industry are concerned, changes in volume may be put into three main categories:

• — exceptional losses or catastrophic losses (earthquakes, wars, drought, epidemics, etc.),

• — the margin between the anticipated depreciation of the assets (measured by the consumption of fixed capital) and the depreciation actually determined (due to unforeseen obsolescence, damage, deterioration and accidental events leading to higher depreciation than anticipated),

• — changes in classification or structure of fixed assets: e.g. changes in the economic purpose of agricultural land, dairy livestock intended for meat production (cf. 2.149, footnote 1) or agricultural buildings which have been altered for private or other economic use.

• 2.137. GFCF and consumption of fixed capital (cf. 3.098 to 3.106) are therefore not the only elements to take into account when analysing the change in the value of assets.

(i) Elements of GFCF

• 2.138. The ESA 2010 distinguishes between several elements which should be recorded as GFCF (cf. ESA 2010, 3.127):

• — dwellings,

• — other buildings and structures including major improvements to land,

• — machinery and equipment, such as ships, cars and computers

• — weapons systems,

• — cultivated biological resources, e.g. trees and livestock

• — costs of ownership transfer of non-produced assets like land, contracts, leases and licences,

• — R & D, including the production of freely available R & D,

• — mineral exploration and evaluation,

• — computer software and databases,

• — entertainment and literary or artistic originals,

• — other intellectual property rights.

• 2.139. For the EAA, a distinction is made between the following types of elements of GFCF:

• — plantations yielding repeat products,

• — fixed asset livestock,

• — fixed assets other than agricultural assets: — machines and other capital goods, — transport equipment, — farm buildings (non-residential), — other structures with the exception of land improvement (other buildings and structures, etc.), — other (computer software, etc.),

• — major improvements to land,

• — costs associated with the transfer of ownership of non-produced assets such as land and production rights,

• — R & D, covering research and development from specialised units and research and development for own production.

• 2.140. GFCF in agricultural assets concerns two types of assets (plantations and animals) which are used repeatedly and continually for the production of products such as fruit, rubber, milk, etc.: fruit trees, vines, hop fields, soft fruit plantations and asparagus beds. Christmas tree plantations (which only provide a finished product once) are not fixed assets, just as cereals and vegetables are not. Animals which serve as fixed assets include, for example, breeding animals, dairy cattle, sheep reared for their wool and draught animals (animals for slaughter, including poultry, are not fixed assets).

(j) Plantations yielding repeat products

• 2.141. According to ESA 2010 (3.125) GFCF in plantations corresponds to the value of acquisitions less disposals of natural assets yielding repeat products (such as fruit trees) which have reached maturity, plus the natural growth of such natural assets until they reach maturity (i.e. generate a product), during the accounting period concerned.

• 2.142. This definition of GFCF corresponds to:

• — expenditure on new plantations (new or renewed) during the accounting period, including amounts spent on maintaining young plantations during the accounting period (during the first three years),

• — the increase in the intrinsic value of plantations up to their maturity,

• — the costs associated with transfer of ownership in exchanges, between agricultural units, of plantations which have reached maturity.

• 2.143. The first two elements of GFCF in plantations represent own-account agricultural output of GFCF.

• 2.144. Disposals of plantations (recorded as negative GFCF) may take two forms: they may be sales of standing plantations to other (agricultural) units, in which case only the costs associated with the transfer of ownership are entered in the EAA. The other possibility is for the plantations to have been felled. In this case, however, according to the general definition of disposals, felled plantations must have a direct economic use; in other words, a counter-entry is required in the form of a use in goods and services (such as a sale to an enterprise specialising in the sale of timber ([^E0025])). In this second case, disposals of plantations to be recorded as negative GFCF should represent a modest amount.

• 2.145. Consequently, in the majority of cases (i.e. except in the second case set out in 2.144), the value of the grubbings must not be deducted from the value of the investments in plantations. Investments intended for renewing existing plantations should be treated as investments and not as routine maintenance costs.

• 2.146. The treatment of grubbings of plantations should be analysed in relation to the calculation of consumption of fixed capital. In accordance with the  ESA 2010, there is consumption of fixed capital in the case of plantations corresponding to the depreciation of the plantations when they have reached maturity. Plantation grubbings ([^E0026]) should therefore be interpreted as follows:

• — grubbings carried out at the end of the normal growing life of plantations correspond to plantations withdrawn from assets. These grubbings are taken into account in the consumption of fixed capital throughout the productive life of the plantations,

• — ‘exceptional’ grubbings are grubbings carried out before the end of the normal growing life of plantations for various (economic, strategic, etc.) reasons. They should be interpreted as the difference between the real (effective) depreciation and normal depreciation measured by the consumption of fixed capital. This depreciation surplus should be recorded in the ‘other changes in volume of assets’ account (accumulation accounts) which is not included in EAA.

• 2.147. The change in the value of plantations over the accounting period therefore comprises the following four components (cf. 2.134):

• — GFCF, which corresponds to the difference in value between acquisitions and disposals during the reference period, as defined in 2.141 to 2.145,

• — consumption of fixed capital, which measures the depreciation of plantations, as defined in 2.146,

• — other changes in ‘volume’ which take account of the effects of unforeseen events on plantations (such as exceptional grubbings) and which are recorded in the ‘other changes in volume of assets’ account (cf. the definition in 2.136 and 2.146),

• — holding gains (net of losses), which measure the changes in value due to changes in price during the accounting period and which are recorded in the revaluation account of the  ESA 2010 accumulation accounts (cf. the definition in 2.135).

• 2.148. Work in cultivated crop assets, i.e. plantations, is recorded either as sales, by enterprises specialising in such kind of agricultural contract work (with soil preparation, supply of machines, plant, labour, etc.), or as output of own-account produced fixed capital goods (cf. 1.75).

(k) Fixed asset livestock

• 2.149. GFCF for livestock corresponds to the following elements:

• — the annual growth of livestock (until they reach maturity);

• — livestock acquisitions (imports) less disposals (slaughterings ([^E0027]) and exports);

• — the costs associated with the transfer of ownership incurred in trade between agricultural units ([^E0028]).

• 2.150. In accordance with the  ESA 2010, GFCF for livestock is a measure of the difference between livestock acquisitions (natural growth and imports) over the year, including those resulting from own-account production, and livestock disposals (for slaughter ([^E0029]), export or any other final use), to which is added the cost of transfer of ownership ([^E0030]). GFCF for livestock occurs throughout the animal's life. To begin with, the GFCF mainly consists of the natural growth of the animal. When it reaches the age of maturity, the GFCF is mainly measured by way of disposals (sales for slaughter or export). Imports, exports and costs associated with the transfer of ownership are components of GFCF for livestock which are likely to occur throughout the animal's useful life. The natural growth of livestock (and not the GFCF as a whole) constitutes own-account agricultural production of fixed assets in livestock.

• 2.151. Measuring the GFCF for livestock only constitutes one element of the change in the value of assets. In fact, GFCF for livestock can only be measured via the change in the number of livestock valued at the average price for the calendar year for each livestock category (quantitative method), if the following conditions are met:

• — no nominal holding gains or losses (i.e. a regular trend in prices and livestock population numbers),

• — no other changes in volume (i.e. no losses due to natural disasters and no changes in classification, etc.),

Another method of calculation (direct method) consists of measuring the flows of entries and withdrawals for each livestock category, at the corresponding prices: apart from acquisitions and disposals, this method has to take into account entries (in particular births) and withdrawals on the holdings.

• 2.152. As a general rule, therefore, GFCF for livestock cannot be measured via the difference between the livestock values at the end and beginning of the accounting period. The rule for calculating the GFCF for livestock depends directly on the method adopted for recording and measuring the three elements of the change in the value of livestock (other than GFCF), and in particular the consumption of fixed capital element.  This is a deviation from the ESA 2010.

• 2.153. In the SNA, theoretically, consumption of fixed capital should be calculated for livestock ([^E0031]). In actual fact, consumption of fixed capital for livestock corresponds to a measurement of the anticipated decline in productivity of livestock when used for production purposes, a reduction which in turn is reflected in the updated value of future income from this livestock. However, in view of the practical difficulties in evaluating consumption of fixed capital (the definition of the calculation parameters are very complex, cf. 3.105 and 3.106), no consumption of fixed capital should be calculated for productive livestock.

• 2.154. GFCF for livestock may be measured by various methods. By using the perpetual inventory method, each of the GFCF elements defined in 2.149 (natural growth of livestock, imports, sales for slaughter and exports, costs associated with the transfer of ownership) can be valued very strictly. Nevertheless, it requires numerous data (such as the prices of productive livestock throughout their useful life). The same is true of methods based on the livestock production cycle. A simpler method therefore needs to be adopted, even if it is less strict.

• 2.155. The recommended method employs an indirect calculation approach ([^E0032]). It is based on calculating the change in the number of livestock and on the following two assumptions:

• — livestock prices are regular and normally predictable, so that the average annual price can be used for valuing quantities whilst excluding from them holding gains/losses,

• — exceptional losses can be estimated (in quantities and prices).

• 2.156. The measurement of GFCF is made up of the sum of the following elements:

GFCF =	Change in the number of livestock between the end and beginning of the accounting period valued at the average annual price P
	+ Culling discount
	+ Other productive livestock losses
	+ Costs associated with the transfer of ownership

• 2.157. The term ‘culling discount’ refers to the difference, at the time of their withdrawal from productive livestock, between the value of the livestock valued as productive animals (at what could be called a ‘capital’ price) and the value of the same livestock valued as animals intended for slaughter (i.e. at the slaughterhouse selling price).

• 2.158. The term ‘other losses of productive livestock’ comprises two types of losses:

• — exceptional losses in productive livestock which have become mature,

• — the value of livestock kept in production until the end of their life (natural death).

• 2.159. The value of losses to be recorded in the calculation of GFCF corresponds to the difference between the value of livestock at the price prevailing at the start of the period and the disposal value of the animals. These disposals are valued at the selling price of animals which are slaughtered (i.e. for sale or own final consumption) or can have a zero value if they have no economic use (e.g. if they are disposed of, etc.).

• 2.160. The terms ‘other losses of productive livestock’ and ‘culling discount’ correspond to flows which are recorded in the ‘other changes in the volume of assets’ account of the balance sheet. They provide a link between the different components of the change in the value of assets and the GFCF, and ensure conformity with the  ESA 2010. Ignoring them would result in the real level of GFCF for livestock being underestimated.

• 2.161. The estimation of own-account production of fixed capital in livestock, which corresponds to the natural growth of animals, is derived from the definition of the GFCF for livestock set out in 2.149 applied to categories of animals which are not yet fully mature:

Own-account production = GFCF + disposals (slaughterings and exports) — acquisitions (imports) ([^E0033]) — (cost of transfer of ownership).

(l) Fixed assets other than agricultural assets

• 2.162. Fixed assets other than agricultural assets (plantations and livestock) comprise the following elements:

• — machines and other capital goods,

• — transport equipment,

• — farm buildings (non-residential),

• — other (other buildings and structure, computer software, etc.).

• 2.163. GFCF corresponds to the acquisition of these assets (new assets produced or imported during the accounting period, or existing assets) less transfers to other units (of the agricultural industry or other industries). It should be recalled that if this transaction concerns two units of the agricultural industry during the same accounting period, the two flows cancel each other out and only the costs associated with the transfer of ownership are recorded under the corresponding fixed asset heading.

• 2.164. In the case of construction or capital goods (intended for sale) whose production is spread over several periods, the value of the work performed in the period of production is to be recorded in the change of stocks of the producer in the form of work in progress. These goods (whether movable or immovable) are not recorded in GFCF until the ownership has been transferred. By contrast, when this production is own-account, this work is recorded as GFCF during the entire production period (cf. 2.025).

• 2.165. Assets whose economic use changes without any change in ownership taking place (e.g. when a farm building is used for purposes other than an agricultural production activity) are not recorded as disposals of assets. These changes are recorded in the ‘other changes in the volume of assets’ account.

(m) Major improvements to land

• 2.166. Major improvements in non-produced tangible assets correspond mainly to land improvement (better quality of land and higher yield through irrigation, drainage and flood prevention measures, etc.) and should be treated like any other GFCF (ESA 2010, 3.128).

• 2.167. These investments correspond to expenditure on the improvement of land and its preparation for other productive uses, with the exception of expenditure on routine maintenance (cf. 2.127 to 2.129). This expenditure has to be made by holders or the result of this expenditure has to become their property.  This concerns in particular expenditure on infrastructure works such as clearance, levelling, drainage, irrigation and consolidation (cf. ESA 2010, 3.128 and 2008 SNA, 10.79 to 10.81).

(n) Costs associated with the transfer of ownership of non-produced assets

• 2.168. Costs associated with the transfer of ownership of non-produced assets refer to acquisitions of land and non-produced intangible assets (such as patented assets, production rights, etc.) by agricultural units. These acquisitions are not recorded as GFCF (but under another heading of the capital account, because they are non-produced assets) and only the costs associated with the transfer of ownership are recorded as GFCF (for the acquirer, but not for the seller).

(o) Research and development

• 2.168.1. Research and development consists of the value of expenditure on creative work undertaken on a systematic basis in order to increase the stock of knowledge, and use of this stock of knowledge to devise new applications. Unless the value can be reasonably estimated it is, by convention, valued as the sum of the costs, including those of unsuccessful research and development (cf. ESA 2010 Annex 7.1).

(o) Goods and services excluded from GFCF

• 2.169. The following goods and services are not included in GFCF:

• (a) small tools, working clothes, spare parts and equipment, even if these goods have a normal useful life of over one year; because they are renewed regularly, and to conform with business accounting practice, these purchases of goods are considered to be intermediate consumption (cf. 2.105 and 2.106);

• (b) ongoing maintenance and repairs (cf. 2.127 to 2.129) are classed as intermediate consumption);

• (c) services of advertising, market research, etc. Purchases of these services are included in intermediate consumption (cf. 2.108(d));

• (d) durable goods acquired by households to satisfy their domestic needs; as these goods are not used for production purposes, they are treated as final consumption;

• (e) animals which serve as stocks: fattening animals reared for slaughter, including poultry;

• (f) holding gains and losses on fixed assets (to be recorded in the revaluation account, cf. 2.135);

• (g) losses of fixed assets due to catastrophic events (cattle diseases, etc.) or force majeure (floods, gales, etc.) (cf. 2.045 and 2.136).

• 2.170. The value of fixed capital goods used simultaneously for professional and private purposes (motor vehicles, for example) is recorded in accordance with their two possible types of use; partly as GFCF and partly, as final consumption.

• 1. Change in stocks

(a) Definition of stocks and change in stocks

• 2.171. Stocks comprise all goods which do not form part of fixed capital and are held by producer units at a given moment. A distinction is made between two types of stocks: input stocks and output stocks:

• — Input stocks are made up of raw materials and supplies which will be used at a later date as intermediate inputs in production processes. Normally, the consumption of these products is calculated by offsetting purchases (or other forms of acquisitions) with a change in stocks in the course of the reference period (cf. 2.021).

• — Output stocks represent the stocks of finished products and work in progress of the producer. They are taken into account in the calculation of output. Output stocks comprise: — finished products from the industry: these are goods which producers have no intention of further processing before sending them for other economic purposes. In the case of agriculture, they include crop products, olive oil, grape must, livestock products and non-agricultural goods produced in inseparable secondary activities, — work in progress: this is output which is not quite finished. For the EAA, it includes wine, livestock for slaughter, all chickens and other poultry (including breeding poultry) and other animals except those regarded as fixed capital. It should be noted that growing crops (cf. 2.012) are not regarded as work in progress stocks in the annual economic accounts.

• 2.172. Not recording growing crops as work in progress is justified for European agriculture by the fact that a very large majority of crops have a production cycle which is shorter than an accounting period. It is also felt that recording them at the time of harvesting allows sufficient consistency with production costs to be maintained in the analysis of income from the activity (cf. 2.012). When the harvest, soil preparation and sowing operations are carried out in different accounting periods, the accounts of the period in which the costs occurred show an accounting loss and those of the harvest period an accounting profit. This accounting method may, however, be accepted because if the conditions remain the same from one year to another an approximate balance is established in that expenditure is offset in the same period by the profit from the sale of the previous harvest. Only in the event of a substantial change in production or in cases of very poor harvests does this compensation not occur. Under such circumstances, the recording of output as work in progress might be indicated (see also 2.013).

• 2.173. It should be noted that services are not entered as stocks except for those included in the purchase value of goods placed into stock.

• 2.174. According to the  ESA 2010, changes in stocks are measured by deducting from the value of stock entries the value of stock withdrawals and any recurrent losses of goods in stock.

(b) Time of recording and valuation of changes in stocks

• 2.175. Stock entries should be valued at the date of entry into stock and withdrawals should be valued at the prices prevailing when withdrawn from stocks. The time of recording (and valuation) of stock entries and withdrawals should be consistent with that of other transactions in products (output and intermediate consumption).

• 2.176. The basic price is the price to be used for valuing changes in stocks (entries, withdrawals or recurrent losses of finished products or work in progress). As regards entries of work in progress, the price used should be estimated by applying the fraction of the total production cost incurred by the end of the period to the basic price of a similar finished product.  Alternatively, the value of the entries of work in progress can be estimated by the value of the production cost with a mark-up for expected operating surplus or (estimated) mixed income (cf. ESA 2010, 3.47 and 3.48).

• 2.177. The method recommended in the  ESA 2010 for recording stock entries and withdrawals is the perpetual inventory method. However, this solution is not generally applicable in view of the difficulty in obtaining information on entries and withdrawals. In an attempt to get into line with the perpetual inventory method, the  ESA 2010 recommends a ‘quantitative’ method which consists in measuring changes in stocks as the difference in volume between the stocks at the opening and closing of the accounting period, valued at the average prices in force during the period concerned. However, this method is only applicable if prices remain stable over the period under consideration or if the prices and quantities stocked increase or decline at a constant rate during the accounting period.

• 2.178. This ‘quantitative method’ cannot be applied to crop production because of the fluctuation in prices and quantities resulting from the production process and the structure of supply and demand.  This problem which is specific to agriculture is recognised by the ESA 2010 (cf. 3.153 (c)).

• 2.179. It should also be considered that a change in stocks, as defined in 2.174, is only one of the components of the change in the value of stocks between the start and end of the accounting period. There is in fact a basic accounting equation which connects the opening and closing figures for stock assets:

Value of closing stocks at the prices applicable at the end of the accounting period
- Value of opening stocks at the prices applicable at the start of the accounting period =	Change in stocks (entries - withdrawals - recurrent losses)
	+ nominal holding gains (net of losses)
	+ other changes in volume

• 2.180. These nominal holding gains and losses and other changes in volume ([^E0034]) should not be included in the measurement of output, but in the account of other changes in assets (respectively, in the revaluation account and in the other changes in the volume of assets account).

• 2.181. The main difficulty in valuing the change in stocks in the EAA concerns crop products. These products are in fact seasonal products whose entries into stocks only occur after the harvest and whose withdrawals are spread over several months after the harvest and often continues into the next accounting year. Their price may also be subject to substantial fluctuations from one period to another, or even within the same period.

(c) Change in stocks of livestock and animal products

• 2.182. When valuing changes in stocks of livestock, it is not very important whether the animals were reared from birth within the country or were imported when young and then reared and fattened in the country. When the imported animals are taken over by the holding which continues rearing them on the national territory, the animals are ‘nationalised’ and consequently assimilated to domestic production.

• 2.183. To evaluate changes in the herd at the end of the reference period, a distinction has to be drawn between the ‘stocks’ herd and the ‘fixed assets’ herd (cf. 2.140 and 2.202). The value at basic prices for the first category of animal should be considered to be the sum of the production costs throughout the life of the average animal in the different livestock classes up to and including the reference year, plus a mark-up for the estimated operating surplus or an estimate of mixed income (cf. 2.176). If an animal was originally imported before its period in the national territory, the purchaser price at the time of import can be regarded as representing the sum of the production costs up to that date.

• 2.184. Because of the generally regular changes in the prices of animals, it is possible to evaluate the change in livestock stocks by a simple approximation method which excludes nominal holding gains (net of losses). For each category of animal, the change in population between the end and the start of the accounting year is multiplied by the average price observed over the reference period.

(d) Change in stocks of seasonal products

• 2.185. Seasonal products (cf. 2.178 and 2.181) are products for which the quantitative method does not constitute a good approximation of the perpetual inventory in view of the irregular change in prices and quantities. The application of the quantitative method could lead to the inclusion of nominal holding gains or losses in the measurement of the change in stocks. One solution could consist in measuring the change in stocks over shorter periods than the reference period (for example, each quarter), subperiods which would have more even price and quantity trends. Nevertheless, this type of method is often difficult to apply because of a lack of basic data.

• 2.186. Another method of evaluating stocks of seasonal products is that of examining the trend in the prices of stocked goods. The price of a good may change during storage for at least three reasons (2008 SNA, 6.143):

• — the production process is sufficiently long that discounting factors should be applied to work put in place significantly long before delivery,

• — its physical qualities may improve or deteriorate with time,

• — there may be seasonal factors influencing its supply or demand, thus resulting in regular and predictable changes in its price over the year, even though its physical qualities may not otherwise change.

• 2.187. The difference between the price at which products are put into stock and the price at which they are withdrawn should reflect the additional output value produced during storage (2008 SNA, 6.143), since products withdrawn from storage several months after harvest are different, in economic terms, from those which have been stored. This type of increase in the value of products should not be counted as a nominal holding gain.

• 2.188. On the basis of the different components of the change in the value of stocks and factors determining changes in the prices of products held in stock, and in view of the difficulty in fully excluding the recording of holding gains or losses from the valuation of seasonal output, two methods are recommended. They differ in their interpretation of the storage activity and the time for recording the change in the value of the goods resulting from their stay in stocks. The first method constitutes the reference method to be applied in valuing output and changes in stocks of seasonal agricultural production. The second method may be used for more specific cases (mainly products whose prices are difficult to predict).

• 2.189. The reference method consists in determining the change in stocks as the difference between the value of output for the year and the value of sales (and other uses) for the same year ([^E0035]). It is founded on the assumption that there are no stocks left over at the end of the marketing year (the end of the first half of the following calendar year). It involves directly evaluating total output harvested during year n using the weighted average price for the marketing year (n/n + 1) and deducting from this the value of all sales (and other uses) made during calendar year n corresponding to the year of harvest ([^E0036]) at the prices applicable at the time of sale (or other uses).

• 2.190. The reference method treats the storage activity as a factor for raising the prices of goods during storage. It thus makes a distinction between the storage activity and its effects on product prices. The increase in value resulting from the stay in storage is ‘anticipated’ since it is allocated to the output of year n (i.e. the year of harvest, even though the sales are spread over two calendar years), it being possible to anticipate price trends without too much uncertainty because they result from fairly regular and predictable changes (cf. 2.186).

• 2.191. The application of this method makes it possible to minimise the inclusion of holding gains or losses in the measurement of output. It ensures consistency between the calculations of output in value and quantity and avoids the recording of output on the basis of work in progress (requiring data on the level of stocks at the start and end of the calendar year, with corresponding prices). It also facilitates the elaboration of accounts in constant prices.

• 2.192. A second method is recommended in the specific case of products whose prices are difficult to predict (such as fruit, vegetables, potatoes and olive oil) and whose storage on agricultural holdings reaches economically significant levels. This method is less strict than the reference method in excluding holding gains and losses from the measurement of output; it considers the storage activity to be an extension of the production process in time. The inclusion of the increase in prices of stored goods is delayed and allocated to the year in which the storage took place.

• 2.193. By this second method, seasonal output is calculated directly as the sum of sales, other uses and changes in stocks. Stock changes are estimated by valuing the stocks at the end and start of the accounting period on the basis of their current prices.

• 2.194. It should be noted that these two methods differ in the way they measure the change in stocks but not in the valuation of sales (which are valued at the basic prices applicable on withdrawal from stocks).

(e) Changes in stocks of wine (from grapes produced by the same holding)

• 2.195. Wine is a product which is generally stocked for several years for ageing and maturing. During this storage period, the quality changes. This storage activity at the holding can be regarded as an extension of the wine production process since the wine leaving storage is different from the wine which entered. Stored wine should therefore be treated as work in progress and the increase in value which is then determined should be regarded as an increase in output to be measured continuously over time.

• 2.196. The change in the value of wine may result from three factors: the change in its quality, changes in the structure of supply and demand (i.e. relative prices between young and aged wines), and a general increase in prices. Whilst the change in the value of wine due to the first two factors should be included in the measurement of output, any increase in the price of wine due to a general increase in wine prices should not be reflected in the value of output but treated as a holding gain (recorded in the revaluation account).

• 2.197. Recording the increase in the value of wine in the value of output should be done throughout the course of the ageing process. However, this would mean having a large amount of data available on the structure of wine stocks based on their production year, quality and production area, as well as on the development of their respective prices. As these data are not generally available in the Member States, two practical methods have been developed which allow the increase in the value of wine due to ageing to be calculated approximately for the EAA. Although not so strict from the conceptual point of view, these two methods nonetheless appear to be acceptable in the current situation regarding availability of data. The choice of each Member State will depend on the structure of its wine-growing industry and statistical system.

• 2.198. Anticipation of the increase in value from wine-ageing: the first method is to value stock entries of wines to be aged by the producer, using the selling prices of wines which have already been aged, as observed in the second half of the year. The expected increase in value is anticipated in the output of the year of harvest. This increase is only partial since these wines are not valued at their real selling prices but at the prices of other wines of the same type but older. The difference between their real selling price and that used for evaluating stock entries is not counted in the value of output, since it is interpreted as holding gain (NB: this difference includes the effects of inflation). Since it makes no distinction depending on the harvest year of the stocked or sold wine, it assumes that the quality wine market is even in terms of age of the wine.

• 2.199. Delay in taking into account wine ageing: the second method is to value stock entries at the price of ‘unaged’ wines at the time of harvesting and not to record an addition to the wine work in progress (i.e. the increase in price due to ageing, irrespective of the effect of the general change in the price of wine) until the aged wine is sold. Since sales are valued at the average price for the year, any increase in value between the harvest year and the year of sale is recorded in the output of the year of sale (and is therefore not distributed over time). This method requires more data on the structure of wine stocks as it assumes that the distribution of stocks (and stock withdrawals) is known for each harvest year. Nevertheless, it can provide a more accurate idea of sales and stocks of different vintages.

• 2.200. Neither of these two practical methods allows the increase in the value of wine from ageing to be distributed over time: one records it in advance and the other after a delay. This disadvantage can be regarded as a relatively minor one in both cases if it is assumed that there is a certain stability over time in the production of ‘aged’ wine. The first method appears to be preferable when the average ageing period is short.

• 1. Recording of livestock as ‘GFCF’ or ‘changes in stocks’‘changes in stocks’

• 2.201. As mentioned in 2.140 and 2.151, changes in the number of livestock (for agricultural statistical purposes) are entered either as GFCF or as changes in stocks depending on the type of animal.

• (a) Definition

• 2.202. GFCF of livestock concerns animals, i.e. fixed assets, used repeatedly and continuously in production processes. They are reared for the output they regularly provide and include, for example, breeding livestock, dairy livestock, draught animals, sheep and other animals reared for their wool. By contrast, animals serving as stocks are animals produced during the current or a previous period which are kept in order to be sold or used for other production purposes at a later date. These include animals reared for their meat such as animals for slaughter and poultry.

• (b) Recording of animal imports

1. Animals identifiable as fixed assets:

• 2.203. If, at the time of import, the animals were able to be clearly identified as a fixed asset, they would be recorded exclusively as acquisitions in the GFCF (cf. 2.149 and 2.150). Of course, only animals bought by the agricultural industry are to be recorded as GFCF of agriculture, and therefore not, for example, saddle horses for private use or animals acquired for other purposes.

2. Animals identifiable as stocks:

• 2.204. By contrast, if at the time of import the animals were able to be clearly identified as stocks (e.g. animals for slaughter) their import would be considered as an entry into stocks of work in progress and therefore, deducted from sales (negative sales) in the calculation of output (cf. 2.069).

3. Treatment to be adopted:

• 2.205. It is often difficult, on the basis of the sources of data available, to draw pertinent distinctions between these two different categories of animals. This is why the value of all imported animals (animals classed as fixed assets or stocks, but with the exception of those imported animals for immediate slaughter) should be deducted from sales in the output calculation. If at any time they are transferred to the herd of productive livestock (i.e. fixed assets), they will be recorded as own-account produced fixed capital goods during the reference period when the transfer takes place (as for animals which are produced and reared in the country and which are then transferred to herds of productive livestock) (cf. 2.069 and 2.070).

• 2.206. It should be noted that animals imported for immediate slaughter are entered as imports of the national abattoirs and are not recorded in the EAA since the latter are restricted to depicting the output of national agriculture.

• (c) Recording of livestock trade between agricultural units

• 2.207. Animals classed as fixed assets: trade in these animals is recorded in GFCF as acquisitions and disposals of fixed assets (services associated with the transfer of ownership are recorded in the purchaser price). When sales and purchases occur in the same accounting period, these flows offset each other and only services associated with the transfer of ownership are recorded as GFCF (cf. 2.068).

• 2.208. Animals classed as stocks: these sales and purchases are only recorded if they occur in two different accounting periods. Services associated with this trade, which are included in the purchaser price, should be deducted from the output total when trade occurs in the same accounting period (cf. 2.067).

• 2.209. Because of the special treatment of livestock trade between agricultural units and imports, there is no intermediate consumption for ‘Livestock and animal products’.

• (d) Non-agricultural animals

• 2.210. The rearing of race-horses, saddle horses, dogs, cats, cage birds, zoo and circus animals and bulls for bullfights is included in the activities defining the agricultural industry, whether it is for breeding, meat production, recreation or sports events (cf. 1.78). The use of these animals for service activities is included in the agricultural industry, only when such activities are performed by agricultural units as inseparable secondary activities. The rearing of non-agricultural animals by units for which the agricultural activity represents solely a leisure activity is not considered as part of the EAA (cf. 1.24).

• 2.211. Such animals may be sold to:

• — households: in which case any subsequent operations involving these animals are of no concern to the EAA,

• — other branches: a guard dog, circus animal or racing horse, for example; these form part of the formation of fixed capital of the purchasing branch.

III.   DISTRIBUTIVE TRANSACTIONS AND OTHER FLOWS

A. DEFINITION

• 3.001. Distributive transactions are transactions:

• — which distribute value added generated by production among the workforce, capital and general government,

• — which involve the redistribution of income and wealth.

• 3.002. The  ESA 2010 distinguishes between current transfers and capital transfers, the latter representing a redistribution of saving or wealth rather than of income.

• 3.003. Given that the EAA are the accounts for an industry, only certain distributive transactions will be described in this chapter. The most important ones are those recorded in the primary income distribution accounts, particularly the generation of income account and entrepreneurial income account (cf. EAA sequence of accounts, 1.38 to 1.48). In the case of the generation of income account, these distributive transactions relate to other taxes on production, other subsidies on production and the compensation of employees. For the entrepreneurial income account, they correspond to certain types of property income (mainly land rents, interest and property income attributed to insurance policy holders). The account also records distributive transactions corresponding to aid for investment and other capital transfers in the capital account.

• 3.004. They do not include some distributive transactions relating to certain property income (mainly dividends and other income distributed by corporations), current taxes on income and wealth, etc. Recording these transactions is only statistically feasible and meaningful if groupings of institutional units, i.e. sectors and subsectors, are taken into account (cf. 1.06).

B. GENERAL RULES

1. Reference period

• 3.005. The reference period for the EAA is the calendar year.

2. Units

• 3.006. The values should be expressed in millions of units of the national currency.

3. Time of recording distributive transactions

• 3.007. As was explained in 2.008, the  ESA 2010 records distributive transactions on an accrual basis, i.e. at the time an economic value, amount due or claim is created, transformed or cancelled or ceases to exist, and not at the moment when payment is actually made. This recording principle (based on rights and obligations) is applied to all flows, irrespective of whether they are monetary flows, or whether they occur between units or within a single unit. However, certain exceptions might be justified for practical reasons.

• 3.008. The times of recording the various types of distributive transaction are as follows:

• (a) Compensation of employees

• 3.009. Gross wages and salaries and actual social contributions (for account of employers) are recorded during the period in which the work was performed, although premiums and other exceptional payments are recorded at the time they become due (cf. ESA 2010, 4.12).

• (b) Taxes and subsidies on production

• 3.010. Taxes on production are recorded at the time when the activities, transactions or other events giving rise to a fiscal obligation take place (cf. ESA 2010, 4.26). Similarly, subsidies on production are recorded at the time when the transaction or other event (production, sale, import, etc.) which gives rise to the subsidy occurs (cf. ESA 2010, 4.39).

• (c) Property income

• 3.011. Interest is recorded during the accounting period in which it is due, irrespective of whether it is actually paid (cf. ESA 2010, 4.50 and following). This is done continuously for the amount of capital in question. Rents are also recorded for the period in which they are due (cf. ESA 2010, 4.75).

• (d) Capital transfers

• 3.012. Capital transfers (investment grants or other transfers) are recorded at the time when payment is due (or, in the case of transfers in kind, when ownership of the asset is transferred or when the debt is cancelled) (cf. ESA 2010, 4.162 and 4.163).

4. General remarks concerning value added

• 3.013. Value added is the balancing item of the production account. It is the difference between the value of output and the value of intermediate consumption (irrespective of the output concept used, since intermediate consumption changes accordingly). It is a key item in measuring the productivity of an economy or industry. It can be accounted for on a gross basis (gross value added) or on a net basis (net value added), i.e. before or after the deduction of the consumption of fixed capital. Net value added is the only resource in the generation of income account. In line with the method for valuing output (basic price) and intermediate consumption (purchaser prices) net value added is measured at basic prices.

• 3.014. By deducting other taxes on production from the value added at basic prices, and adding other subsidies on production, the value added at factor cost is obtained. Net value added at factor cost constitutes the income of the factors of production.

C. COMPENSATION OF EMPLOYEES

• (cf. ESA 2010, 4.02 to 4.13)

• 3.015. The compensation of employees is defined as total remuneration, in cash or in kind, payable by an employer to an employee in return for work done by the latter during the accounting period (cf. ESA 2010, 4.02). It includes:

• — gross wages and salaries (cash/kind),

• — employers' social contributions (actual and imputed).

• 3.016. Gross wages and salaries in cash comprise the following components:

• (a) direct basic wages and salaries (payable at regular intervals);

• (b) enhanced rates for overtime, night or weekend work, work of a particularly arduous nature, etc.;

• (c) cost of living and accommodation allowances;

• (d) wage benefits such as Christmas, end-of-year, holiday or productivity bonuses and allowances for higher grades;

• (e) allowances for transport to and from work ([^E0037]);

• (f) compensation for days not actually worked, paid holidays;

• (g) commissions, tips, attendance fees;

• (h) other allowances or occasional payments linked to overall company results as part of profit-sharing schemes;

• (i) payments made by employers contributing to asset formation by employees;

• (j) one-off payments to employees when they leave the enterprise, in so far as the payments are not made under a collective agreement;

• (k) housing allowances payable in cash by employers to their employees.

• 3.017. It should be stressed that the data to be entered are gross wages and salaries, including wage and salary taxes and any higher rates of these taxes and employees' social security contributions. In cases where net wages and salaries are paid by employers to their employees, therefore, they should be increased by the value of these items.

• 3.018. Gross wages and salaries in kind comprise goods and services made available by employers to their employees free of charge or at reduced prices for use by the employees and their families, as and when they wish, to satisfy their needs. They do not necessarily figure in the production process. Their value is the value of the benefit which they represent: the value of the goods if they are provided free of charge, or the difference between the latter value and the payments to the employees if they are provided at reduced prices These items, which are of considerable significance in the EAA, include the following components:

• (a) agricultural products made available to employees free of charge or at reduced prices, by way of remuneration ([^E0038]);

• (b) accommodation services produced for own account and provided to employees free of charge or at reduced prices ([^E0039]);

• (c) goods and services purchased by employers, provided that these purchases fulfil the definition of wages in kind (i.e. when they do not constitute intermediate consumption). In particular, the transport of employees between their place of work and home is part of their wages in kind, unless the journeys take place during the employer's time. This category includes purchased accommodation services and children's crèches, etc. (cf. ESA 2010, 4.05).

• 3.019. Wages and salaries in kind should be valued at their basic price or at the purchaser price (depending on whether the items are produced by the unit or purchased from outside).

• 3.020. Gross wages and salaries, by contrast, do not include expenditure by employers which is to their own benefit and incurred in the interest of the enterprise. The items in question are, inter alia: allowances towards/reimbursements of expenditure on travel, separation or removal incurred by employees in the course of their duties, entertainment expenses incurred by employees on behalf of the enterprise and expenditure on providing amenities at the place of work (e.g. sports and recreational facilities). Similarly, cash payments by employers to their employees for the purchase of tools or special clothing (including amounts which employees are contractually obliged to devote to such purposes) are not part of gross wages and salaries included under this heading.  All these items are recorded in the intermediate consumption of employers (cf. ESA 2010, 4.07).

• 3.021. Employers' social contributions include the value of social contributions paid by employers to ensure that their employees are covered by social welfare provisions (except employees' social contributions deducted at source from gross wages or salaries (cf. 3.017). These contributions may be actual or imputed.

• 3.022. Actual social contributions represent the payments made by employers, including statutory, contractual and voluntary contributions by way of insurance against risks and social hardship. These social contributions are paid to insurers (social security administrations or private insurers). Although paid directly to insurers, they are treated as a component of compensation of employees since the latter are deemed to receive the contributions and then pay them to insurance enterprises.

• 3.023. Employers' imputed social contributions represent the counterpart to other social insurance benefits, paid directly by employers to their employees or former employees and other eligible persons without involving an insurance enterprise or autonomous pension fund ([^E0040]) (cf. ESA 2010, 4.10). These contributions are recorded during the period in which the work is performed (if they are the counterpart of compulsory social benefits) or when the benefits are provided (if they are the counterpart of voluntary social benefits). Employers' imputed social contributions is split into two categories: (a) Employers' imputed pension contributions and (b) Employers' imputed non-pension contributions (ESA 2010, 4.10 and 4.97).

• 3.024. It must be stressed that, in the EAA, if the production units are individual enterprises, the compensation of employees does not include the remuneration for work carried out on the holding by the holder or non-salaried members of his family; these persons share in the mixed income, which is the balance of the generation of income account for individual enterprises. If, however, the production units are part of a corporation (cf. 5.09 and 5.10), all remuneration has to be recorded as compensation of employees.

D. TAXES ON PRODUCTION AND IMPORTS

• (cf. ESA 2010, 4.14 to 4.29)

• 3.025. Taxes on production and imports are compulsory, unrequited payments, in cash or in kind which are levied by general government, or by the institutions of the European Union, in respect of the production and importation of goods and services, the employment of labour, the ownership or use of land, buildings or other assets used in production.  These taxes are payable whether or not profits are made (cf. ESA 2010, 4.14).

• 3.026. Taxes on production and imports are divided into:

• — taxes on products (D.21): — VAT-type taxes (D.211), — taxes and duties on imports excluding VAT (D.212), and — taxes on products, except VAT and import taxes (D.214)

• — other taxes on production (D.29)

• 1. Taxes on products

• 3.027. Taxes on products are taxes payable per unit of produced or traded good or service.  They may be equivalent to a monetary amount determined per unit of the good or service or calculated ad valorem as a fixed percentage of the unit price or value of the good or service (cf. ESA 2010, 4.16).

• 3.028. VAT-type taxes are taxes on goods and services collected in stages by enterprises and ultimately charged in full to the final purchaser (cf. ESA 2010, 4.17). They include VAT and other deductible taxes applied under rules similar to those governing VAT ([^E0041]).

• 3.029. Taxes and duties on imports excluding VAT comprise compulsory payments levied by general government, or by the institutions of the European Union, on imported goods, excluding VAT, in order to admit them to free circulation on the economic territory, and on services provided to resident units by non-resident units (cf. ESA 2010, 4.18).

• 3.030. They include import duties and other taxes such as levies on imported agricultural products, monetary compensatory amounts levied on imports, excise duties, etc. They are payable by importers and are normally passed on to the holder who purchases the products, i.e. they become part of the purchaser price of the goods and services. In cases where means of production are imported directly by agricultural producer units, the import duties, non-deductible VAT and monetary compensatory amounts (receipts or payments) should also appear in the purchaser price used for EAA purposes.

• 3.031. Taxes on products, except VAT and import taxes, consist of taxes on goods and services produced by resident enterprises and payable as a result of the production, export, sale, transfer, leasing or delivery of those goods or services, or as a result of their use for own final consumption or own capital formation (cf. ESA 2010, 4.19 and 4.20).

• 3.032. In the case of agriculture, the taxes in question are:

• — taxes on sugar beet,

• — penalties for exceeding milk quotas,

• — co-responsibility levies formerly applying to milk and cereals.

• 3.033. As output is recorded at basic prices, taxes on products are recorded within the production account (cf. 2.082 to 2.086) and do not appear in the generation of income account. They should be recorded when the activities, transactions or other events which give rise to the payment take place. Since the EAA record these items net of deductible VAT, the only turnover tax recorded in them is non-deductible VAT. This is why no VAT is recorded in the accounts, except in the special case of under-compensation of VAT included under ‘other taxes on production’ (cf. 3.048(g)).

• 3.034. Taxes on products (other than VAT) which affect certain products of agricultural intermediate consumption should be included in the purchaser price of intermediate consumption in the production account (cf. 2.110 to 2.113). Such cases include, for example, taxes on sugar and alcohol used for wine-making which are levied in some EU Member States. These taxes, which constitute taxes on products of the agri-food industries, should be added to the value of intermediate consumption of the agricultural industry.

• 1. Treatment of VAT

• 3.035. The description in the ESA 2010 (4.17) refers to the standard VAT system under which each enterprise is allowed to deduct from the amount of VAT due on its own sales the amount of tax it has paid on its purchases of intermediate inputs or capital goods. However, in addition to the standard VAT regulations, there are special regulations for agriculture (VAT flat rate systems) which differ in form from one EU Member State to another.

• 3.036. The flat-rate systems used in the EU Member States can be grouped into two main types of compensation for VAT paid on purchases:

• — via price. In this case, farmers subject to the flat-rate system sell their products at a price increased by the VAT flat rate percentage but do not pay the invoiced VAT to the financial authorities since the VAT they invoice and retain is calculated to compensate as exactly as possible for the VAT which they have paid on their purchases,

• — as a refund. Under this system, farmers sell their products exclusive of VAT. On application to the financial authorities, they later receive a refund calculated as a flat-rate percentage ([^E0042]) applied to their sales in compensation for the VAT which they have paid on their purchases.

• (a) Definitions

• 3.037. The following concepts for the standard VAT system apply also to the flat-rate systems:

• (a) VAT invoiced by the producer: this is the VAT which the producer calculates at the rate applying to the product sold and which he charges on his invoice to each domestic purchaser;

• (b) VAT invoiced to the producer on intermediate consumption: this is the VAT calculated at the rate applying to each product bought and which the producer has paid on his intermediate inputs; this is called deductible ([^E0043]) VAT on intermediate consumption;

• (c) VAT invoiced to the producer on purchases of fixed capital goods: this is called deductible VAT on purchases of capital goods;

• (d) VAT payable by the producer on his current transactions: this is the difference between the VAT invoiced by the producer and the VAT invoiced to the producer on his intermediate consumption purchases (a-b);

• (e) Total VAT paid by the producer: this is the difference between the VAT invoiced by the producer and the total VAT invoiced to the producer on his intermediate consumption purchases and on his purchases of capital goods (a-b-c).

• 3.038. The provisions of the ESA 2010, 4.17 lay down a single method of recording VAT. This is the ‘net’ system, whereby output and input prices are recorded exclusive of deductible VAT.

• 3.039. In tax law, VAT is treated as a ‘transitory item’ for producers, so that the deductible VAT which a producer has to pay on his purchases does not represent a true cost component for his own calculations and can be regarded merely as an advance instalment of the VAT which he has to calculate on his own turnover, thus leaving him only the difference to pay to the tax office. Since, in general, it is only the final consumer who has to pay the VAT levied on that product, the producer (together with the producers of the intermediate consumption goods required) acts effectively as an agent of the tax office. Conversely, where it is not possible for the producer to deduct (or reclaim) tax paid on purchases (non-deductible VAT), the VAT in these cases should be regarded as a cost component.

• (b) Operation of the net recording method

• 3.040. For farmers subject to the standard system there is no accounting difficulty; VAT invoiced on products sold, or otherwise disposed of, is ignored in the EAA and should not appear in any output price used for evaluating final output, while deductible VAT paid on purchases of items of intermediate consumption and fixed capital goods is also excluded from the relevant prices when calculating expenditures for the EAA.

• 3.041. For farmers subject to the flat-rate systems, however, there are accounting problems (cf. 3.035 and following). As is obvious, the compensation allowed to individual farmers will only rarely be exactly equal to the VAT which they have paid on their purchases. In the case of the flat-rate systems, the method of recording VAT will be identical to that used for the standard system, i.e. exclusive of VAT for the individual items of final output and exclusive of deductible VAT for the individual items of intermediate consumption and GFCF.

The difference between the flat-rate compensation granted to farmers who are subject to the flat-rate systems and the VAT which they would have been able to deduct if they had been subject to the standard VAT system represents over- or under-compensation. Any over- or under-compensation must be entered separately in the EAA.

• 3.042. The method of recording over- or under-compensation of VAT under flat-rate systems is as follows:

• — over-compensation of VAT on purchases is recorded under ‘Other subsidies on production’,

• — under-compensation of VAT on purchases is recorded under ‘Other taxes on production’.

‘VAT on purchases’ is the VAT which farmers who are subject to the flat-rate system would have been able to deduct had they been subject to the standard VAT system.

• 3.043. This recording method offers the advantage of being conducive to uniform treatment of agricultural output, intermediate consumption and GFCF, irrespective of the VAT system to which farmers are subject. Moreover, it makes for symmetrical treatment of over- or under-compensation of VAT compared with gross value-added at basic prices. This enables gross value-added at basic prices to be calculated regardless of the VAT system adopted, which favours harmonisation and comparability of the EAA of the Member States (cf. 3.033).

• 1. Other taxes on production

• 3.044. Other taxes on production comprise all taxes that enterprises incur as a result of engaging in production, independently of the quantity or value of the goods and services produced or sold (cf. ESA 2010, 4.22). They may be payable on land, fixed assets or labour employed in the production process or on certain activities or transactions.

• 3.045. Other taxes on production are the only taxes to be recorded in the generation of income account for the industry. They appear in the accounts of the branches or sectors which pay them (payment criterion).

• 3.046. The taxes to be recorded in the generation of income account for agriculture must be:

• (a) compulsory;

• (b) paid direct by the agricultural industry;

• (c) paid to general government or the institutions of the European Union;

• (d) within the definition of other taxes on production (see 3.044).

• 3.047. Owing to the disparate historic developments of public finances in the various EU Member States, there is a very wide range of taxes on production throughout the EU. In agriculture, there are two other fairly important types of tax on production: property tax and motor vehicle tax.

• 3.048. For agriculture, the most important other taxes on production are:

• (a) property taxes and other taxes on the use of land and buildings used for production purposes (irrespective of whether the agricultural units own or hire them);

• (b) taxes on the use in production of fixed capital goods such as motor vehicles, machines or other equipment (irrespective of whether the agricultural units own or hire them);

• (c) wage-bill taxes paid by the employer;

• (d) taxes on pollution resulting from production activities;

• (e) taxes on licences/permits to engage in commercial or professional activities, on condition that the licences/permits are granted automatically once the amounts due have been paid. If a regulatory function attaches to these payments (e.g. checks on the applicant's competence or qualifications), they should be treated as purchases of services from general government and be recorded as intermediate consumption (unless they are completely out of proportion to the cost of providing the services in question) (cf. 2.108(o));

• (f) water rates which are paid as flat-rate taxes and not proportional to the quantity of water consumed;

• (g) under-compensation of VAT resulting from the application of the flat-rate VAT systems (cf. 3.041 and 3.042).

• 3.049. In line with the accrual principle, taxes on production are recorded at the time when a fiscal obligation is incurred. In the case of under-compensation of VAT, this is the time of purchase of goods and services of intermediate consumption and the GFCF which gives rise to it (not the time of reimbursement).

• 3.050. Other taxes on production do not include:

• (a) statutory payments which are made direct by the agricultural industry but whose recipients are neither general government nor institutions of the European Union. These payments are regarded as purchases of market services from recipients of transfers and therefore included in the intermediate consumption of agriculture;

• (b) fines and penalties and the costs imposed in connection with collection and recovery should not be recorded with the taxes to which they relate, unless they cannot be distinguished from them (cf. ESA 2010, 4.133);