Input tax deduction for the supply of tenant electricity

In its ruling of 17 July 2024, published on 26 September 2024, the XI. Senate of the BFH ruled that the supply of electricity, which the landlord of residential property generates himself via a photovoltaic system and supplies to his tenants for a fee, is not a dependent ancillary service of the VAT-exempt (long-term) letting of residential property, but an independent service subject to VAT, which entitles the tenant to deduct input tax from the input services, as the law allows the tenant to freely choose the electricity provider and the electricity supply is billed separately and according to individual consumption (differentiation from the BFH judgement of 07. 12.2023, V R 15/21, BStBl II 2024, 503, on the input tax deduction for the supply of a heating system). In the course of this, the XI Senate of the BFH dismissed the tax office's appeal against the judgement of the Lower Saxony Fiscal Court of 25 February 2021, 11 K 201/19, as unfounded in accordance with Section 126 (2) FGO (Fiscal Court Code). The BFH states that the previous Lower Saxony Fiscal Court was right to recognise that the supply of tenant electricity to residential tenants is an independent main service in addition to the tax-free rental service, so that the VAT from the purchase of the photovoltaic systems is deductible as input tax, which is why the previous decision proves to be correct. BFH, judgement of 17 July 2024, XI R 8/21