On June 20 2013 the European Court of Justice (ECJ) rendered its decision in Fuchs (C-219/12). According to the court, Austrian homeowner Mr Fuchs, who had photovoltaic installations (or solar panels) on the roof of his house without the possibility to store the produced electricity, was a 'taxable person' as defined in the Sixth Directive, and was therefore entitled to deduct input value added tax (VAT) on the purchase of the panels from output VAT to be calculated on his supplies of electricity to the grid.
In a request for a preliminary ruling from the Austrian Administrative Court, the ECJ held that Articles 4(1) and (2) of the Sixth Directive (77/338/EEC (PbEG 1977 L 145/01)) must be interpreted as meaning that the operation of a photovoltaic installation on or adjacent to a private dwelling, which is designed such that the electricity produced is always less than the electricity privately consumed by its operator and supplied to the network in exchange for income on a continuing basis, falls within the concept of 'economic activities' as defined in that article. Therefore, Fuchs (as a private homeowner with a photovoltaic installation on his roof) had to be regarded as a 'taxable person' as defined in the Sixth Directive.
Contrary to the opinion of the Austrian government, the fact that "electricity produced by the solar panels does not exceed the operator's household needs" was not relevant to the question of whether the operation of a photovoltaic installation could be defined as an 'economic activity'. According to the ECJ, supplying electricity to the network through the installation must be seen separately from the electricity needs of the household itself.
The ECJ judgment has led to parliamentary questions to the state secretary of finance on the consequences for Dutch electricity producing household end users.
Under the Dutch Electricity Act 1998, every consumer has:
- a combined connection and transportation agreement, which by law is entered into for an indefinite period, with the assigned network operator in his or her place of residence; and
- a supply agreement, which by law can be entered into only for a definite period, with a freely chosen supplier.
Pursuant to Dutch regulations, a supplier is obliged to:
- net off the power supplied to the end user with the power fed into the grid by such end user; and
- offer reasonable remuneration for a possible surplus of electricity fed into the grid.
The ECJ's ruling was based on, among other things, its finding that for the purposes of Article 4(2) of the Sixth Directive, Fuchs supplied electricity to the network in exchange for income on a continuing basis. It could be argued that the situation in the Netherlands is substantially similar from an economic viewpoint, even if one could take the view that to the extent that the electricity produced by the photovoltaic installation is being netted off with the electricity supplied by the supplier, no actual supply by the end user to the supplier has taken place, but merely a temporary exchange of electricity with the grid.
If the Fuchs ruling were applied to Dutch private photovoltaic installations owners in the Netherlands, this would have the following consequences:
- The owner must take certain (administrative) actions, such as calculating the output VAT over the amount of self-generated electricity. He or she also needs to register at the Tax and Customs Administration Office and submit periodic VAT returns, in which he or she must include the calculated VAT as VAT due. Conversely, the owner is allowed to deduct the input VAT on the purchase of the panels from the output VAT on his or her supplies of electricity to the grid.
- Private homeowners who are due less than €1.883 of VAT on balance are eligible for a tax exemption on account of the Dutch Small Business Exemption, which may result in a release from the obligation to pay any VAT. Under certain circumstances, one can also ask for an exemption from administrative obligations.
- Private persons who already possess solar panels possibly have to pay VAT due on electricity generated in the past.
At present, it is unclear whether these private persons are due to pay the aforementioned VAT or whether they can come to an arrangement with the Tax and Customs Administration Office. It is also not yet clear whether private persons who have already purchased the solar panels can reclaim the input VAT on the purchase of the panels.
The outcome of Fuchs may turn out to be the end of so-called 'VAT netting' for photovoltaics. Dutch VAT netting comprises a custom practice in which energy suppliers charge VAT on the difference between the fee as calculated on the electricity supplied to the private person and the reasonable remuneration that the private homeowner receives for the supplied self-generated electricity.
The further development of photovoltaics in the European Union and in the Netherlands may be influenced by how Fuchs is interpreted in the respective member states. The national impact of Fuchs may become clear only in court proceedings instigated by end users claiming back VAT paid on their installations.
For further information on this topic please contact Elisabetta Aarts or Roland de Vlam at Loyens & Loeff NV by telephone (+31 20 578 5785), fax (+31 20 578 5800) or email (firstname.lastname@example.org or email@example.com).
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