Solar photovoltaic systems purchased for household use within the European Union will no longer be subject to any VAT (a type of consumption tax) — even if they don’t produce a net surplus of energy that is then fed back into the grid — as per a new ruling by the European Court of Justice.

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The ruling is the result of a challenge made by an Austrian homeowner who argued that he shouldn’t have to pay VAT because it’s a form of economic activity. His local tax office had previously ruled that he couldn’t reclaim the VAT paid on his solar PV system as his system generated less energy than his household used. However, the European Court of Justice in Luxembourg disagreed with this local tax office — it noted that profit or loss didn’t matter, that a solar power system that feeds electricity into a grid for payment on a regular basis is indeed a form of economic activity. The ruling was just announced last Thursday.

The Austrian homeowner in question — a Mr Fuchs from the Linz district of Austria — installed his system back in 2005 and now provides electricity to Ökostrom Solarpartner.

Like many other household solar PV systems, Mr Fuchs’ system generates somewhat less energy than his household uses on a monthly basis. As a result, he pays slightly more on his electric bill most months than he receives from Ökostrom Solarpartner for the electricity that his system produces. To his mind (and mine), regardless of whether or not he was feeding a net total of electricity into the grid, the activity of selling electricity to Ökostrom Solarpartner constituted an engagement in “economic activity.” Why wouldn’t it? That’s what other electricity providers who sell electricity to the grid are engaged in.

The local tax office — the Freistadt Rohrbach Urfahr finanzamt — had argued that because his system wasn’t providing a net surplus of electricity to the grid that it didn’t constitute an economic activity, and thus he was still subject to VAT. As a result of the local tax office’s ruling, Mr Fuchs appealed to the Independent Finance Tribunal of Linz, which then sought guidance from the EU Court of Justice, who finally ruled in his favor.

This recent verdict from the EU Court of Justice means that the cost of installing a solar energy system anywhere in Europe shouldn’t be subject to VAT, which considerably reduces the cost of solar for homeowners.