The German Federal Court of Finance (BFH) has ruled on the tax treatment of free heat provided by one business to another. A company (plaintiff) ran a combined heat and power plant (CHP) generating electricity and heat from biogas. They sold electricity but gave away excess heat to other businesses (Trader A and B GbR) for drying wood and heating asparagus fields.
The BFH, after consulting the European Court of Justice (CJEU), decided:
-
- Giving away heat for business purposes is still considered a “supply” under VAT rules.
- Even if the recipient can deduct input VAT on the heat, it doesn’t exempt the supplier from paying VAT.
- To calculate the VAT amount, the cost price of the heat needs to be determined. This cost includes both direct production costs and indirect costs like financial expenses.
- The cost price should be divided between electricity (sold) and heat (given away) based on market value, not just energy used. There’s a specific method for this calculation.
This ruling clarifies that free heat transfers between businesses are still subject to VAT. Companies giving away heat need to consider the cost price and VAT implications.
Source: hub.kpmg.de
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
