VAT Treatment of Electricity Supplied by Landlords from Photovoltaic Systems
The use of photovoltaic systems by landlords to supply electricity to their tenants is becoming increasingly common. However, the tax framework—particularly with regard to VAT liability—is often complex and raises many questions. A key issue is whether electricity supplies should be classified as a VAT-exempt ancillary service to residential rental or as an independent principal service.
Background
Value-added tax in Germany is governed by the Value-Added Tax Act (UStG), which provides for various tax exemptions, particularly in the area of residential property rentals. According to Section 4(12)(a) of the UStG, the rental of residential property is generally exempt from value-added tax. However, this provision raises the question of how the landlord’s additional services, such as the supply of electricity from their own photovoltaic systems, should be treated.
Decision of the Federal Fiscal Court
A landmark decision by the Federal Fiscal Court (BFH) has now clarified these issues. In a recent ruling, the BFH decided that the supply of tenant electricity derived from a photovoltaic system operated by the landlord is not to be considered a VAT-exempt ancillary service to the rental if the tenants have the option to choose their own electricity provider. Consequently, the supply of electricity was classified as an independent principal service alongside the VAT-exempt rental service.
Characteristics of the Principal and Ancillary Services
The distinction between principal and ancillary services is crucial for VAT treatment. A principal service is generally an independent, economically relevant service, while ancillary services are dependent on the principal service and support its purpose. In the case of electricity supply, the Federal Fiscal Court (BFH) argued that, as soon as tenants have the option to choose their electricity provider, the supply of electricity can be considered a separate service.
This view is supported by the ECJ ruling of April 16, 2015, which held that, in the case of a combination of different services, a comprehensive assessment is required to determine whether they constitute a single service or multiple separate services.
Consequences for Landlords and Tenants
The decision has far-reaching consequences for landlords who operate photovoltaic systems. They can now deduct the VAT on the purchase costs of the systems as input tax, which represents a significant tax relief. For tenants, this means they may be able to benefit from lower electricity prices, as the landlord is now competing with other electricity providers.
Conclusion
The Federal Fiscal Court’s clarification of the VAT treatment of tenant electricity from photovoltaic systems provides clear guidelines for both landlords and tenants. The ability to freely choose an electricity provider supports the classification of electricity supplies as independent principal services and contributes to fairer competition in the energy market. Landlords should, however, be aware of the changes in tax treatment and, if necessary, adjust their contract terms to take full advantage of the new regulations.
If you would like to learn more about this topic, we would be happy to advise you. At Trimborn . Partner, we have been supporting our clients with exceptional dedication in all economic and tax matters since 1979. With our offices in Düsseldorf and Oberhausen, we offer you direct points of contact. Contact us to schedule a consultation. We look forward to meeting you.
