- Court of Justice of the European Union: Charging electric cars for VAT is a supply of goods – judgment of 20 April 2023, C-282/22
- Reverse charge of VAT on exchange transactions of gas, energy and CO2 emission allowance
- No obligation to pay excise duty in the case of renting premises with photovoltaic installation – amending interpretation by the Head of KAS, sign: DOP7.8101.4.2022
- Amendment of the Act on investments in wind power plants (the so-called Windmill Act)
- Illegal collection of electricity is subject to VAT – CJEU judgment of 27 April 2023, C-677/21
- Implementation of projects performed by local authorities assessed by the CJEU
1. Court of Justice of the European Union: Charging electric cars for VAT is a supply of goods – judgment of 20 April 2023, C-282/22
On 20 April 2023, the Court of Justice of the European Union, in response to a preliminary ruling from the Supreme Administrative Court, delivered a judgment on the interpretation of the Council of EU Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006, L 347, p. 1), as amended by the Council of EU Directive 2009/162/EU of 22 December 2009. (OJ 2010, L 10, p. 14) (hereinafter “the Directive” or “the Directive 2006/112“).
The CJEU judgment is an answer for a significant legal doubt as to how charging electric cars should be classified for VAT purposes. According to the directive, the supply of goods means the transfer of the right to dispose of a thing as owner. In contrast, a supply of services is any transaction that does not constitute a supply of goods.
According to the Court’s established position, such a sale is a supply of goods and not a supply of services. Furthermore, the judgment emphasizes that additional activities facilitating the use of the charging stations (such as provision of chargers, technical support, payment facilities) are subsidiary to the main activity, which is the supply of goods, which means electricity. By their nature, they do not change the classification of the benefit and the nature of the whole is determined by the main benefit.
Importantly, the court’s ruling can also create effects on excise and energy law, because in certain cases, the sale of electricity requires a license to trade in electricity and triggers excise duty.
2. Reverse charge of VAT on exchange transactions of gas, energy and CO2 emission allowance
Following the Act of 9 March 2023 amending the Act on Enforcement Proceedings in Administration and certain other acts (Journal of Laws of 2023, item 556), promulgated on 24 March 2023, Poland has introduced a temporary reverse charge on gas in the gaseous system, electricity in the electric power system and services for the transfer of greenhouse gas emission allowances. These provisions were introduced by the VAT directive and are of an episodic nature – effective from 1 April 2023 until 28 February 2025. According to the Ministry of Finance, this solution will increase the competitiveness of the Polish exchange system. It assumes that taxpayers are purchasers or recipients of services with regard to the supply of gas in the gaseous system, the supply of electricity in the electric power system and the provision of services regarding the transfer of greenhouse gas emission allowances, when they are made directly or through an authorised entity on:
- commodity exchange within the meaning of the commodity exchange regulations,
- regulated market or Organised Trading Facility (OTF) within the meaning of the Act on Trading in Financial Instruments.
In addition, entities obliged to apply this mechanism are required to submit an appropriate notification to the head of the tax office before the first transaction is made. This information will be recorded in the JPK_V7 form, and transactions covered by the reverse charge will be entered therein as other supplies of goods for which the taxpayer is the purchaser in accordance with Article 17(1)(5) of the VAT Act. The new rules will apply to the JPK_V7 form submitted from settlements for April 2023.
3. No obligation to pay excise duty in the case of renting premises with photovoltaic installation – amending interpretation by the Head of KAS, sign: DOP7.8101.4.2022
Charging the costs of consumed energy from renewable sources to the tenants of service premises should not be considered in terms of energy sales, the Head of the National Fiscal Administration stated in an interpretation dated 1 February 2023. [mark: DOP7.8101.4.2022], amending the individual interpretation of the Director of National Fiscal Information of 26 May 2022. [mark: 0111-KDIB3-3.4013.80.2022.1.JS].
The individual interpretation was requested by a taxpayer whose subject of activity is the rental and management of own real estate, and who intends to install a photovoltaic installation on a building leased by him, the energy from which will be used to supply energy to his leased commercial premises. The taxpayer’s question concerned the situation whether, in connection with charging the tenants for the cost of the electricity actually consumed, produced from the photovoltaic installation on the basis of the sub-meter readings, or for a lump-sum cost of electricity not resulting from the sub-meter readings, he would be obliged to pay excise duty, and whether, when providing a comprehensive rental service, which would include, inter alia, the cost of the electricity produced from the photovoltaic installation, he would be obliged to pay excise duty or could be exempted from this obligation.
After re-examining the case, the Head of the National Fiscal Administration stated that in the described situation the taxpayer is not engaged in a business activity, which is the production of energy, so billing the tenants of the premises for the energy consumed by them does not constitute the sale of electricity. According to the authority, also the tenants of the premises cannot be qualified as final purchasers of electricity, as they buy a comprehensive rental service from the company and, under the agreement concluded, bear the costs of the electricity consumed in the rented premises. As a result, the Head of the National Fiscal Administration stated that in the situation in question, there would be no tax obligation on the sale of electricity to the final purchaser in the territory of the country (Article 9(1)(2) of the Excise Duty Act).
On the other hand, the taxpayer (the applicant) will be obliged to pay excise duty in relation to the consumption of electricity produced from photovoltaic panels. Contrary to the position of the Director of the National Tax Information, the applicant will be entitled to apply an exemption from excise duty for the consumption of electricity from photovoltaic installations when the total capacity of the generators does not exceed 1 MW.
4. Amendment of the Act on investments in wind power plants (the so-called Windmill Act)
On 23 March 2023, the Act of 9 March 2023 amending the Act on investments in wind power plants and certain other acts was published in the Journal of Laws. The act provides, among other things, that new wind turbines will be allowed to be located at a distance of not less than 700 m from buildings on the basis of a Local Development Plan. The rule of ten times the maximum height of the turbine (10H rule) is retained for national parks, and for nature reserves the limit will be 500 m. For other forms of nature conservation, the distance is to result from a case-by-case environmental decision.
More importantly, the amendment provides that an investor executing an investment consisting in the construction of a wind power plant will have to allocate at least 10 per cent of the installed capacity of the wind power plant being the subject of the investment to be covered by the residents of the municipality. This way, any resident who is the final consumer in the municipality where the power plant is being built will be able to voluntarily conclude a renewable energy agreement with the investor in order to become a virtual prosumer on the basis of this agreement. Moreover, there are additional obligations concerning technical activities that are important to ensure the safe operation of key technical components of wind power plants (the so-called principles of safe operation of a wind power plant). These will be carried out by specialised commercial enterprises certified by the Office of Technical Inspection, whose activities will be controlled by it. Failure to comply with the obligation to subject technical elements of a wind power plant to servicing inspections will result in a fine of at least PLN 10 000 and no more than 5% of the fined entrepreneur’s revenue generated in the previous fiscal year. The provisions of the Act entered into force on 23 April 2023; exceptionally, regulations allowing the inclusion of residents of the municipality where the wind power plant is to be located in the catalogue of virtual prosumers will be in force from 2 July 2024.
5. Illegal collection of electricity is subject to VAT – CJEU judgment of 27 April 2023, C-677/21
On 27 April 2023, the Court of Justice of the European Union issued a preliminary judgment (C-677/21) on the interpretation of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), as amended by Council Directive 2009/162/EU of 22 December 2009. (OJ 2010, L 10, p. 14) ( hereinafter “the Directive“).
The Court ruled on the VAT treatment of the illegal extraction of fuel or energy. A Belgian citizen had been taking electricity at his residential address for more than two years without first concluding a contract with a commercial energy supplier (Fluvius Antwerpen) and without giving notice of such a contract to the previous supplier. Fluvius Antwerpen therefore charged the Belgian citizen with a fee for illegal energy consumption which included, in addition to the value of the energy consumed, interest for late payment and for the duration of the dispute, as well as VAT. The court of appeal in Antwerp, before which the case was pending, expressed doubts about the chargeability of VAT in circumstances such as those in the case before it, despite awarding compensation to the company.
According to the CJEU, the supply of electricity by a distribution network operator, even if forced and resulting from the unlawful act of a third party, constitutes a supply of goods for consideration consisting in the transfer of the right to dispose of a thing. The non-contractual extraction of electricity qualifies as a supply of goods for consideration subject to VAT, and the distributor charging for it is a VAT payer. The Court also pointed out that the risk of loss incurred as a result of theft, in the present case the risk of bearing at one’s own expense the quantity of electricity lost due to its unlawful collection by a third party, is a typical commercial risk of economic activity, in this case the activity of an electricity distribution network operator.
It should be noted, however, that the judgment in question regulates the issue of illegal consumption of electricity only in the case of failure to conclude a contract. The Energy Law still distinguishes such methods of illegal energy consumption as total or partial omission of the metering and billing system, as well as interference with the system which has the effect of falsifying the measurements.
The CJEU judgment in Case C-677/2 will most likely be relevant to previous and future settlements of distributors who did not pay VAT on non-contractual consumption of electricity. In time, similar doubts and questions may arise for companies that supply water or heat.
6. Implementation of projects performed by local authorities assessed by the CJEU
On 30 March 2023, two judgments of the Court of Justice of the European Union were published following preliminary questions from the Supreme Administrative Court in Poland. The case concerned the taxation of municipal asbestos removal projects on residents’ properties (C-616/21) and the taxation of EU subsidies for the installation of renewable energy systems on residents’ properties (C-612/21).
The SAC’s doubts concerned the determination of whether local authorities act as VAT taxpayers when implementing the established projects, as well as the aspect of including the subsidy received by the local authority in the taxable base. In the published judgments, the CJEU took a position different from that of the Polish tax authorities, according to which local government units do not act as VAT taxpayers when implementing the aforementioned projects, but as public authorities. In the opinion of the CJEU, neither the supply and installation of RES systems by a municipality, nor the activity of commissioning an external company to remove asbestos and collect products containing asbestos from residents constitute a supply of goods or services subject to VAT.
Such activities of municipalities are not aimed at generating a regular income and do not lead to any payment from residents (in the case of RES installation – residents bear at most ¼ of the costs incurred). The Court’s position means that, in the case of projects financed mainly by subsidies, municipalities should not pay VAT on investments involving renewable energy sources, nor have the right to deduct input tax from invoices documenting, for example, the services of contractors.