Impending loss of tax benefits under the Electricity and Energy Tax Act

An overview of tax benefits under the Electricity and Energy Tax Acts

Electricity and energy tax law contains numerous tax benefits for companies. Under the tax exemption for electricity generated from renewable sources (section 9(1) nos. 1 and 3 StromStG), no electricity tax is due on the supply of electricity produced from renewable sources in certain installations. The tax relief for companies in the manufacturing industry (section 9b StromStG and section 54 EnergieStG) and for cogeneration of heat and power (section 53a EnergieStG) give companies the way to have the electricity or energy tax reimbursed for the energy they consumed.  

Furthermore, tax exemptions and relief exist for other special cases, for example energy consumption in public transport.

Background to “business in difficulty” – what does it mean?

Many tax benefits are considered state aid as defined by European state aid law. The consequence of this is that tax advantages may not be granted to businesses in difficulty.  The problem here is that companies that are not at all in financial straits may count as a company in difficulty. 

The status of company in difficulty already applies if half of its own funds have been lost on losses that have been run up. This therefore not only includes companies involved in insolvency proceedings or those receiving rescue aid or restructuring aid. The denial of tax benefits will therefore come as an unpleasant surprise to the companies affected. 

The subject of discussion with the central customs offices is often how and whether the status of a company as being in difficulty can be remedied. In the past many companies found remedy in a comfort letter. 

Current developments: Federal Fiscal Court (BFH) decisions and view of the customs authorities

The Federal Fiscal Court (Bundesfinanzhof) has now decided (judgement of 7 October 2024, file ref. VII R 14/21) that if the conditions have been met for a company being considered as in difficulty, this cannot be undone by a positive going concern forecast. The wording of the Act is therefore clear. But the Federal Fiscal Court left it open whether an unconditional, unrestricted and legally binding undertaking to assume the losses in full made by another company or legal entity would lead to a different result.   

Conclusion and outlook: Check whether the tax benefits can still be claimed

It will be more difficult in future for companies that meet the conditions of being in difficulty as defined by EU state aid law nevertheless to benefit from the applicable tax relief under the Electricity and Energy Tax Acts.

Alongside this is the fact that customs will no longer accept a letter of comfort from the parent company to overcome the status of business in difficulty. All in all, it can be observed that application is becoming stricter. Nevertheless, it is worth checking in each case whether it is possible to remedy this status and whether the tax benefits can still be claimed.

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