In Finanzamt Freistadt Rohrbach Urfahr v Unabhängiger Finanzsenat Auβenstelle Linz, Austrian homeowner Thomas Fuchs installed solar panels on the roof of his house. As the installation had no storage capacity, he had a contract with his local electricity company to supply the electricity he generated to the main network. In return, he received the market price – which is subject to VAT – and then bought back electricity at the same price to meet his household needs (more than he was able to generate).
When he installed the solar panels, he applied to the tax authority for reimbursement of the VAT involved which was refused. He appealed.
The case eventually came before the Court of Justice which was asked to consider whether under EU law the operation of a solar panel installation on or near a privately-owned house 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”.
The court ruled that it did. Fuchs received remuneration for the electricity he generated so his exploitation of the installation was carried out for the purpose of obtaining income. As the supply of electricity to the network was carried out on the basis of a contract concluded for an indefinite duration, the income was obtained on a continuing basis.
The court said that, given these considerations, it was irrelevant that the amount of electricity the installation produced was always lower that the amount Fuchs required back for his household needs.
According to CCH senior VAT consultant Glyn Edwards, the case will have implications for the UK government’s Green Deal scheme to promote energy-efficient homes. “This development will not be welcome in Whitehall,” he said.
“It seems the government will need to completely rethink its strategy on how it funds household renewables.”
It will also cause an administrative nightmare for HMRC, he added, if thousands of homeowners register for VAT. Electricity companies would also have to process invoices from a multitude of small suppliers top the National Grid.