Solar Power Systems and Tax Law: New Developments for Taxpayers

Tax regulations governing photovoltaic systems are constantly changing. New rulings by tax courts and updated administrative interpretations create uncertainty, but also open up new planning opportunities for taxpayers. In this article, we provide an up-to-date overview of relevant tax developments in the field of photovoltaic systems.

Tax Treatment of Photovoltaic Systems on Multiple Buildings

Until now, the Schleswig-Holstein tax authorities held the view that the tax exemption under Section 3 No. 72 of the Income Tax Act (EStG) did not apply if the output of a photovoltaic system on a single building exceeded the building-specific maximum limit. This restrictive view has now been abandoned, which brings relief for operators of systems installed on multiple buildings.

Restrictions on the investment deduction under Section 7g of the German Income Tax Act (EStG)

Another important ruling concerns the application of the investment deduction under Section 7g of the German Income Tax Act (EStG) to photovoltaic systems. While business use was previously recognized even if more than 10% of the electricity generated was used for private purposes, the Hessian Finance Court ruled otherwise. Accordingly, § 7g EStG is not applicable if the owner’s own consumption of the electricity exceeds 10%. This has significant implications for the tax incentives for photovoltaic systems.

Deduction of Business Expenses Despite Tax Exemption

Another relevant decision comes from the Lower Saxony Finance Court: According to this ruling, business expenses incurred prior to the introduction of tax exemption in 2022 remain deductible. Therefore, anyone who made investments in their system in the years prior to 2022 can claim these as tax deductions retroactively. Taxpayers in similar situations should keep their tax assessments open until the Federal Fiscal Court issues a final ruling.

Can photovoltaic systems be classified as building costs?

Until now, the costs of rooftop and in-roof photovoltaic systems have not been treated as building costs for tax purposes. On November 6, 2024, the Institute of Public Auditors in Germany (IDW) published new principles regarding the commercial law distinction between maintenance and construction costs. These could also have tax implications.

Under certain conditions—such as when there is a legal obligation to install the system or the electricity is consumed almost exclusively within the building—photovoltaic systems could be classified as building improvement costs in the future. This would affect depreciation and could also mean that Section 7g of the Income Tax Act (EStG) would no longer apply in these cases.

Conclusion

The tax regulations for photovoltaic systems remain a dynamic issue. While the revised stance of the Schleswig-Holstein tax authorities brings relief, the rulings from Hesse and Lower Saxony could create new challenges for taxpayers. It remains to be seen how the tax authorities and the Federal Fiscal Court will position themselves on these issues.

Operators of photovoltaic systems should closely monitor current case law and seek tax advice early on to make the most of potential benefits.

The team of tax advisors in Düsseldorf and Oberhausen, Trimborn . Partner, is also available to assist you with advice and support in these matters. Please feel free to schedule a no-obligation appointment for an initial consultation for you or your company.