Deductibility of input VAT on a photovoltaic installation in a privately-owned house

09.2013

The difficulties that private individuals owning solar power systems face have been often discussed throughout the years. Among these difficulties is the reluctance of national tax administrations to accept the deductibility of input VAT in this type of businesses. This issue was recently studied in the ruling of the EU Court of Justice of 20 June 2013 (C-219/12).

A private individual in Austria installed a solar panel system on the roof of his house. Part of the electricity generated was consumed by the owner himself, and the rest was sold to a company for later distribution. On some occasions, the owner consumed electricity from that same company. The Austrian tax administration rejected the deductibility of input VAT claiming that the owner of the solar panels was not performing an economic activity, as the electricity generated – a part of which was sold – never exceeded the electricity consumed by the owner. In other words, the balance between produced electricity and consumed electricity was always favourable to the electrical company and not to the owner of the photovoltaic installation.

The Court ruled that input VAT was deductible because the owner of the solar panels was a taxable person with regards to VAT, as the aim of his activity was to obtain income on a continuing basis. In this case, even if the income obtained was lower than the cost of the energy consumed, this should not be an impediment to consider this as economic exploitation, since the generation of electricity and the occasional consumption thereof were different operations that needed to be examined separately. Moreover, the coherence of the system required that, as output VAT was charged on the sale of electricity, the input VAT related to this activity should also be deductible.

++Published at the tax newsletter of the German Chamber of Commerce related to VAT news.++