Stückmann Podcast Episode 27: Photovoltaic systems and their taxation
Photovoltaic systems play a central role in the energy transition and are also becoming increasingly important for property investors. However, particularly in the case of larger property portfolios, a crucial tax question quickly arises: does the operation of a photovoltaic system generate commercial income – and thus jeopardise the asset management structure?
In this episode of ‘Taxes to go’, Juliette Gill talks to Oliver Middendorf about the tax pitfalls and structuring options involved in the use of photovoltaic systems in asset-managing partnerships.
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Asset management meets energy transition – a conflict of tax objectives
Real estate is often held in asset management partnerships. A key advantage of this structure is that real estate can generally be sold tax-free after the ten-year speculation period has expired if it is held as private assets.
On the other hand, many property owners wish to invest in renewable energies, particularly in photovoltaic systems. The problem from a tax perspective is that electricity generation is generally considered a commercial activity. If such income is generated within an asset-managing partnership, there is a risk of so-called commercial contamination with far-reaching tax consequences.
Tax exemptions for photovoltaic systems since 2022
The legislator has responded to this issue and introduced special tax exemptions for photovoltaic systems as of 1 January 2022. Under certain conditions, income from the operation of the system remains exempt from income tax.
One of the requirements is that certain performance limits must be observed: currently, up to 30 kilowatts (peak) may be installed per residential or commercial unit, but no more than 100 kilowatts (peak) per taxpayer. If the systems remain within these limits, there is neither taxable income nor commercial interference with asset management activities.
Larger facilities and the risk of commercial infection
If these performance limits are exceeded, the tax exemptions no longer apply. In this case, the income from the photovoltaic system is considered commercial income, with the result that the entire asset management partnership may be subject to taxation.
The consequences are serious: all income is considered commercial, and tax-free sale of the property after ten years is no longer possible. This can lead to considerable tax disadvantages, especially for larger property portfolios.
Outsourcing to an affiliate company – solution or new risk?
One frequently discussed approach is to transfer the photovoltaic system to a separate sister company. The property remains in the asset management partnership, while electricity generation takes place in another company.
However, this approach is not without risk. According to the tax authorities, the transfer of the roof space could result in a division of operations. Despite the legal separation of the companies, this could result in commercial income. The podcast episode highlights why the tax authorities are particularly critical in this regard and how this view differs from previous Federal Fiscal Court (BFH) case law.
Case law versus financial administration – an unresolved area of tension
While the Federal Finance Court has ruled in other contexts that the roof area does not constitute an independent economic asset, the tax authorities sometimes take a different view in the case of photovoltaic systems.
This legal uncertainty makes planning considerably more difficult. According to the current administrative opinion, there is ultimately only one solution to reliably avoid the risk of a demerger: the removal of personnel links between the real estate company and the PV company.
Conclusion: Photovoltaics yes – but with fiscal prudence
The operation of photovoltaic systems on real estate can be unproblematic from a tax perspective if the statutory performance limits are observed. In the case of larger systems, however, there are considerable tax risks that must be carefully examined and structured.
