VAT treatment of photovoltaic systems – Clarifications regarding completion between 2022 and 2023
The Munich Local Court had to deal with a case concerning the VAT treatment of a photovoltaic system that was installed in 2022 but was only completed and ready for operation in 2023 (Ref.: 158 C 24118/23). The starting point of the legal dispute was the question of whether VAT still had to be paid on the services in such a situation or whether the new regulations for the VAT exemption of photovoltaic systems already applied.
Legal basis and new regulations as of 1 January 2023
Implementation of VAT exemption
With effect from 1 January 2023, pursuant to § 12 para. 3 UStG, the VAT rate for the supply, import, intra-community acquisition, and installation of photovoltaic systems on private, public, and other buildings has been set at 0%, provided the system meets certain requirements (such as capacity limits). With this legislative change, the legislator aims to further promote the expansion of renewable energies by means of economic incentives and to reduce bureaucratic obstacles.
Differentiation: Supply, assembly, and commissioning
As part of the tax assessment, it is crucial to differentiate when the relevant point of performance occurs. In the case of the photovoltaic system in dispute, the assembly had already been completed in 2022, but official commissioning only took place in 2023. This distinction is significant since VAT generally arises when the service is performed.
Guiding principles of the court and key arguments
Completion of essential performance as the decisive time
The court made it clear that, for the application of the zero tax rate, the decisive factor is the final completion of the photovoltaic system so that it is ready for operation—that is, the point in time when the system is fully installed and the requirements for starting operation have been met. In cases of phased or successive assembly services, the last essential partial service is decisive for the tax performance date.
No VAT liability for transitional cases
In the present case, the Local Court ruled that the conditions for applying the zero tax rate under § 12 para. 3 UStG were met, since the handover and completion of the system ready for operation only occurred in 2023. The preliminary work in 2022 does not change this, because only with completion and handover does a taxable supply or other service arise. In addition, VAT law explicitly stipulates that partial services under a contract for work and materials are to be considered as a single overall service if there are no separately chargeable partial services.
Significance for practice in installation and billing of photovoltaic systems
Impact for system operators and installers
The judgment provides legal certainty in that, for projects realized in 2022/2023, the decisive factor is the final completion. For system owners, this means that if their system is only commissioned in 2023, they do not have to pay VAT on installation costs, even if most of the construction work took place in the previous year. Companies in the solar industry benefit from clear rules in billing practice, provided that any advance payments are not regarded as separately chargeable partial services.
Distinctions in billing and liability risks
Installation companies and system operators are well advised to draft contracts for the construction and acceptance of photovoltaic systems carefully and transparently. The classification of partial services can have tax consequences, especially when contracts are performed over several years. Errors in billing can lead to claims for back payments or repayments, which in practice often result in disputes between the contracting parties.
Conclusion and further developments
The judgment of the Munich Local Court provides significant clarity for the VAT treatment of photovoltaic systems affected by the transitional period between the old and new legal situation. This applies to both private and commercial investors who value legal certainty and calculation reliability. However, in each individual case, it is advisable to carefully review the specific circumstances in the light of the current legal situation, especially since court proceedings are still ongoing and interpretative questions have not yet been conclusively resolved.
Source reference
The information presented is based, among other things, on the reasoning of the judgment of the Munich Local Court of 26.11.2024 (Ref.: 158 C 24118/23), available at <a href="https://urteile.news/AG-Muenchen158-C-2411823Fuer-eine-2022-errichtete-aber-erst-2023-fertiggestellte-Photovoltaik-Anlage-ist-keine-Umsatzsteuer-zu-zahlen~N34586″>urteile.news.
If you have any questions regarding the interpretation or application of VAT law in the context of investments or contracts relating to photovoltaic systems, MTR Legal Rechtsanwalt is at your disposal with comprehensive experience to analyze the individual legal framework conditions.
