Case Report: Finanzamt Freistadt Rohrbach Urfahr v Unabhängiger Finanzsenat Ausenstelle Linz, in the presence of Fuchs (Case C-219/12)

Court of Justice of the European Union (Second Chamber).

Judgment given on 20 June 2021

Value added tax – Sixth VAT Directive 77/388, Article 4(1) and (2) (now Directive 2006/112, Articles 14(1) and 15(1)) – Concept of economic activity – Deduction of input tax – Operation of a photovoltaic installation on the roof of a house which is used as a dwelling – Supply to the network – Remuneration – Electricity production lower than consumption.

Summary

  Mr Fuchs had a photovoltaic installation fitted on the roof of his dwelling in Austria. All the electricity produced was supplied to the network under a contract, which was for an indefinite period. The electricity needed for Fuchs’s household needs was bought back from the network operator at the same price as the price of the supply.

  Fuchs reclaimed VAT in connection with the purchase of the installation. However, the Finanzamt decided that Fuchs was not entitled to reclaim the VAT as he had not carried out an economic activity by operating the installation.

  Case law shows that the scope of the term economic activity is wide and is considered without regard to its purpose or results (para. 17 of the judgment).

  Under the Sixth Directive, Article 5(1) and (2) (now Directive 2006/112, Articles 14(1) and 15(1)), the supply of goods means the transfer of the right to dispose of tangible property as owner and that electric current is treated as tangible property.

  The ECJ held that operating a photovoltaic installation must be regarded as falling within the concept of economic activity as defined in the Sixth Directive, Article 4(2) if it is carried out for the purpose of obtaining income on a continuing basis (para. 18 of the judgment).

  Whether that activity is designed to obtain income on a continuing basis is a question of fact which must be assessed having regard to all the circumstances, including the nature of the property (para. 19 of the judgment).

  The fact that a property is suitable only for economic exploitation is normally sufficient for a finding that its owner is exploiting it for the purposes of economic activities and, consequently, for the purpose of obtaining income on a continuing basis. By contrast, if, by reason of its nature, property is capable of being used for both economic and private purposes, all the circumstances in which it is used must be examined to determine whether it is actually being used for the purpose of obtaining income on a continuing basis (para. 20 of the judgment).

  Comparing the circumstances in which the person actually uses the property with the circumstances in which the corresponding economic activity is usually carried out may be one way of ascertaining whether the activity is carried out for the purpose of obtaining income on a continuing basis (para. 21 of the judgment).

  A network-connected installation on or adjacent to a house that is used as a dwelling is capable of being used for both economic and private purposes (para. 22 of the judgment).

  As the installation produces electricity which is fed into the network in return for remuneration, the exploitation of that installation is carried out for the purpose of obtaining income (para. 26 of the judgment).

  As the contract granting access to the network was for an indefinite period, the supply of electricity by that installation takes place on a continuing basis(para. 27 of the judgment).

  It is irrelevant that the amount of electricity produced by the installation is lower than the amount consumed for household needs (para. 29 of the judgment).

Comment

  If applied in the UK, this judgment enables the many households with solar panels to register for VAT and claim a significant refund of VAT. HMRC may respond by removing the exemption from direct tax that households enjoy as regards the feed-in tariff.

  For commentary on the meaning of economic activity, see the CCH Value Added Tax Reporter ¶ 10-635.



SOURCE: CCH Online