SteuerGo FAQs

(2022) Photovoltaics: Operating and selling the system are business income

The tax authorities and tax courts treat income from the operation of a photovoltaic system as "income from business operations". But is this really correct? In fact, the operation of a photovoltaic system lacks all the characteristics of a business, such as active participation in the market and competition, own pricing, various customers, the possibility to change the network operator, active involvement of the operator (who actually does nothing).

The operator even lacks a say, as the network operator unilaterally determines the contract conditions. The photovoltaic operator actually has no say. The installation of photovoltaic systems is also approved in purely residential areas where commercial activity is prohibited.

In fact, with photovoltaics, the operator provides a photovoltaic system that they have purchased and installed for a fixed period of 20 years, namely rented out for a fee (plus VAT) based on the electricity fed in. This is a turnover lease. And this should lead to income from rental and leasing rather than business income. Those who install a photovoltaic system regularly do so because of the expected return.

The 20-year contract period with the regional electricity supplier also shows that it is a medium- to long-term investment, especially since the return is the main focus for investors. Therefore, one could assume that a photovoltaic system leads to "income from rental and leasing" and the sale of the system leads to "other income".

Currently, the Baden-Württemberg Finance Court has ruled that the operation and sale of a photovoltaic system constitutes income from business operations (Baden-Württemberg Finance Court, 5 April 2017, 4 K 3005/14).

According to the judges, the operator of a photovoltaic system undertakes an independent, sustainable activity with the intention of making a profit and participates in general economic transactions (Section 15 (2) EStG). Participation in general economic transactions requires that the activity is provided for a fee on the market and is externally recognisable to third parties, for example by feeding electricity into the grid of an energy supplier for a fee. Activity for a specific contractual partner is sufficient. The fee can be determined on a success-dependent basis. If the operator produces electricity and sells it to a customer, this activity exceeds the scope of private asset management.

New simplification rule for small systems

The Federal Ministry of Finance stipulates that for small photovoltaic systems, it can be assumed on written application by the taxpayer that they are not operated with the intention of making a profit. In this case, there is generally a tax-irrelevant hobby. This means: For the operation of certain photovoltaic systems, it is possible to waive the preparation and submission of an income surplus calculation. In return, however, losses may not be deducted for tax purposes.

The application also applies for subsequent years. The same applies to the operation of small combined heat and power plants (BMF letter of 2 June 2021, V C 6 - S 2240/19/10006 :006, BStBl 2021 I p. 722). The principles are:

• The simplification rule applies to photovoltaic systems with an installed capacity of up to 10 kW, which are installed on owner-occupied or rent-free single and two-family houses, including outdoor installations (e.g. garages), and were put into operation after 31 December 2003.
• The rule also applies to combined heat and power plants with an installed capacity of up to 2.5 kW, if the above conditions ("single and two-family houses") are met.
• For the listed photovoltaic systems and comparable combined heat and power plants, it is to be assumed for simplification purposes, without further examination, on written application by the taxpayer, in all open assessment periods, that they are not operated with the intention of making a profit. In this case, there is generally a tax-irrelevant hobby. The application also applies for subsequent years.
• For assessment periods in which the above conditions do not apply (e.g. in the case of a change of use, enlargement of the system beyond the specified capacity), the simplification rule is not to be applied, regardless of the declaration by the taxpayer. They must inform the relevant tax office in writing of the loss of the above conditions.
• Assessed profits and losses (e.g. in the case of assessments subject to review or provisional assessments) from past assessment periods that are still open to amendment under procedural law (e.g. in the case of assessments subject to review or provisional assessments) are no longer to be taken into account. In these cases, an EÜR form for the operation of the photovoltaic system/combined heat and power plant is no longer to be submitted for all open assessment periods.

Does the equity rule also apply to VAT? No, the rule only applies to income tax and not to VAT. Therefore, a VAT return must still be submitted unless the small business regulation has already been applied. In this respect, the benefit of the equity rule is somewhat limited. However, you should check whether you are now classified as a small business and can then also waive the submission of a VAT return. You can choose the small business regulation (Section 19 UStG) for VAT if your turnover in the previous year was not higher than 22,000 Euro and is not expected to be higher than 50,000 Euro in the current year.

Note: From 1 January 2023, photovoltaic systems are to be given better tax support. This is provided for in the draft Annual Tax Act 2022. In detail:

For income and trade tax purposes, it is planned that not only small systems up to 10 kW will be exempt from taxation. The Federal Government intends to introduce a tax exemption for income from the operation of photovoltaic systems with a gross nominal output (according to the market master data register) of up to 30 kW on single-family houses and commercial properties or 15 kW per residential and commercial unit in other predominantly residential buildings (e.g. multi-family houses, mixed-use properties).

For VAT, the following should apply: For the delivery, intra-community acquisition, import and installation of photovoltaic systems and electricity storage, a VAT zero rate is to apply in future, provided it is a service to the operator of the photovoltaic system and the system is installed on or near private homes, flats and public and other buildings used for activities serving the common good. Operators of photovoltaic systems will therefore no longer be burdened with VAT when purchasing the system, so questions regarding input tax deduction will no longer arise.

Of course, it remains to be seen whether the regulations will actually be adopted as planned. The new EU Directive 2022/542 of 5 April 2022 allows a zero VAT rate. If this zero VAT rate is applied, the input tax deduction of the supplier or tradesperson remains unaffected. This is also permitted by the EU Directive.