VAT on the direct consumption of self-generated energy
In its circular of 31.3.2025, the Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) abandoned its previous legal view on the VAT treatment of the direct consumption of electricity from own power generation plants. It has thus fallen into line with the case law of the Federal Fiscal Court (Bundesfinanzhof, BFH) and created legal certainty, in particular, for institutions that provide VAT-exempt services (e.g., hospitals, care homes).
Up to now, for VAT purposes the BMF considered that a plant operator - e.g., of a combined heat and power (CHP) plant or a biogas plant - supplies all the generated electricity and thus also the energy used for its own needs to the grid operator and, subsequently, buys it back if it receives a subsidy for this under the German Renewable Energy Sources Act or the German Combined Heat and Power Act. In both cases VAT is incurred. In this respect, for the self-consumed electricity a legal fiction was used. The BFH then clearly rejected the fiscal administration’s legal fiction concept (in particular, in the BFH ruling of 29.11.2022, case reference: XI R 18/21, and again in other decisions). The BMF, in its circular of 31.3.2025 (reference: III C 2 - S 7124/00010/002/10) has now fallen into line with this view.
New administrative opinion - Own use is not a supply to the grid operator
Since the BMF now follows case law, own use no longer constitutes a supply to the grid operator. The resale does not apply. Consequently, no taxable transaction arises. For operators with mostly tax-exempt output transactions this constitutes an advantage because, in the future, VAT will no longer be incurred on self-consumed electricity - which in the absence of an entitlement to deduct input tax could not be offset.
The change will however have an adverse effect on the input tax deduction. Insofar as electricity is used for own needs, the entitlement to deduct input tax will in this respect cease to exist. For input tax amounts that have already been claimed (e.g., from investments in CHP) an amendment might be necessary pursuant to Section 15a of the German VAT Act.
