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Germany’s Renewable Energy Tax Credit requires action by 31 March 2019

Executive summary

At the end of 2018, the German legislator passed the new Energy Collective Act (Energiesammelgesetz). The law changes the basis of how quantities of electricity for captive consumption vs. consumption by other users must be allocated.

This new law affects all companies, which either operate power plants (regardless of their capacity) or qualify for a reduction of the surcharge according to the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz – EEG) (EEG Tax) such as an undertaking with intensive electricity costs or a railway undertaking. If companies do not comply with the new regulations or submit incorrect data, there is a material risk that they will lose their EEG Tax reduction (EEG Tax Credit) and thus significant amounts of money (this can be up to several million euros per year).

The German Federal Office of Economics and Export Control (Bundesamt für Wirtschaft und AusfuhrkontrolleBAFA) has contacted all companies which are eligible under the EEG’s special equalization scheme and requested them to review their previous allocation of electricity and to report the results to BAFA by 31 March 2019, including an amended auditor’s certificate. Otherwise, they risk losing the entire EEG Tax Credit for the year 2019.

You can check under this link in the “BAFA-list” if your clients are affected by the current issues.

Detailed discussion

Background

For every consumed kilowatt hour, a consumer in Germany has to pay a surcharge of more than six eurocents according to the EEG. BAFA may limit, upon request by undertakings with intensive electricity costs and railway undertakings, this surcharge to maintain their international competitiveness. As an example, for a yearly consumption of 20 gigawatt hours this can lead to a profit of approximately €1m.

One of the requirements for such a reduction is that the companies have a certain ratio of electricity costs to gross value added. For the electricity costs, only one’s own electricity consumption is to be taken into account, i.e., electricity which is forwarded to third parties cannot be considered as the applicant’s consumption. In this context, there have been and there are various ambiguities on how the electricity consumption has to be allocated between one’s own consumption and consumption by other users and as to when the other users’ consumption has to be measured with calibrated meters.

Usually, companies who apply for an EEG Tax Credit receive their decision for the upcoming limitation year from BAFA by the end of the preceding year. In 2018, this was not the case. BAFA waited for the finalization of the Energy Collective Act’s legislative process.

Summary of BAFA’s letters

Due to the emerging and now implemented change of law, BAFA sent three letters in December 2018 to all applicants for the EEG Tax Credit in 2019. In summary, BAFA asks all applicants to re-examine their information on their captive electricity consumption made in the application in light of the new law.

Moreover, BAFA now recognizes as consumed by the applicant those quantities of electricity for which workers of third parties are employed under service agreements. In the case of contracts for work, the contract employee is to be regarded as the operator of the electricity consumption facilities and therefore this electricity consumption is regarded as consumption by other users.

If the application filed in 2018 does not only contain quantities of electricity consumed by the applicant itself, the applicant is asked to submit also a corrected auditor’s certificate.

Implications

Applicants must answer the questions raised by BAFA by 31 March 2019. Otherwise, they risk losing the entire EEG Tax Credit for 2019. As mentioned above, this can lead to a material loss (depending on the amount of electricity consumption up to several million euros per year).

The new law on the measurement of electricity and the differentiation between captive consumption vs. electricity consumption by other users also impact the EEG Tax Credit application for the upcoming limitation years.

EYG no. 000184-19Gbl

Download this Tax Alert as a PDF file.

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