Trade tax: extended reduction for transferred real estate
Trade tax: extended reduction for transferred real estate
The activity of an asset-managing partnership that is undertaken with the intention of generating income is deemed to be a commercial enterprise pursuant to § 15 Para. 3 No. 2 of the German Income Tax Act (EStG) and is therefore subject to trade tax. In cases of mere asset management through the letting of its own property, it has the option of an extended reduction of trade income pursuant to § 9 no. 1 sentence 2 of the German Trade Tax Act (GewStG). By contrast, the transfer of real estate as part of a business split is an original commercial activity that excludes an extended reduction.
However, in its ruling of 19.12.2023 (case no. IV R 5/21), the BFH dealt with various issues relating to the extended reduction for commercial asset-managing partnerships. In the matter in dispute, a GmbH & Co. KG leased its real estate to another company, which operated a motor vehicle business including a car wash on the leased space. The lessor claimed the extended reduction of its profit from the business in its trade tax return. The tax office and tax court assumed a (commercial) business lease and the co-letting of operating equipment and denied the extended reduction. The BFH took a more differentiated view and ultimately allowed the appeal.
The letting of the real estate as part of a commercial business lease does not preclude preferential treatment if the essential operating assets that characterize the business are leased out and this exclusively concerns the company's own (developed) real estate. After all, not every business lease is detrimental to the reduction, even if, in the case of a business lease, not only real estate is typically transferred for asset management purposes. As other types of assets are usually also managed and used, case law has so far denied the extended reduction in cases of business leases.
The company had also leased windows and roller shutters installed in the car wash - which were part of the common property - as well as outdoor areas (car parking spaces) for which the company only had a special right of use. Nevertheless, the BFH assumed a transfer of exclusively “own property”. The crucial factor is the existence of the real estate belonging to the business assets, irrespective of whether it is the property of the company under civil law or merely the economic property of the company due to the special right of use. The prerequisite that this real estate must be a mandatory part of the economically sensible transfer of the company's own real estate was met in the present case with regard to the windows and parking spaces.
A co-letting of any operating facilities that are not part of the real estate under valuation law would be detrimental to the reduction. The car wash would constitute such an operating facility, but - contrary to the findings of the tax court - it had been sold to the tenant and was therefore not part of the rental agreement. On the other hand, the structural installations for the enclosure of the car wash, which are also in question, are to be regarded as part of the building and therefore do not exclude the extended reduction.
However, in its ruling of 19.12.2023 (case no. IV R 5/21), the BFH dealt with various issues relating to the extended reduction for commercial asset-managing partnerships. In the matter in dispute, a GmbH & Co. KG leased its real estate to another company, which operated a motor vehicle business including a car wash on the leased space. The lessor claimed the extended reduction of its profit from the business in its trade tax return. The tax office and tax court assumed a (commercial) business lease and the co-letting of operating equipment and denied the extended reduction. The BFH took a more differentiated view and ultimately allowed the appeal.
The letting of the real estate as part of a commercial business lease does not preclude preferential treatment if the essential operating assets that characterize the business are leased out and this exclusively concerns the company's own (developed) real estate. After all, not every business lease is detrimental to the reduction, even if, in the case of a business lease, not only real estate is typically transferred for asset management purposes. As other types of assets are usually also managed and used, case law has so far denied the extended reduction in cases of business leases.
The company had also leased windows and roller shutters installed in the car wash - which were part of the common property - as well as outdoor areas (car parking spaces) for which the company only had a special right of use. Nevertheless, the BFH assumed a transfer of exclusively “own property”. The crucial factor is the existence of the real estate belonging to the business assets, irrespective of whether it is the property of the company under civil law or merely the economic property of the company due to the special right of use. The prerequisite that this real estate must be a mandatory part of the economically sensible transfer of the company's own real estate was met in the present case with regard to the windows and parking spaces.
A co-letting of any operating facilities that are not part of the real estate under valuation law would be detrimental to the reduction. The car wash would constitute such an operating facility, but - contrary to the findings of the tax court - it had been sold to the tenant and was therefore not part of the rental agreement. On the other hand, the structural installations for the enclosure of the car wash, which are also in question, are to be regarded as part of the building and therefore do not exclude the extended reduction.
Notice:
The application of § 9 no. 1 sentence 2 GewStG is primarily for the purpose of equal treatment for trade tax purposes of the mere management and use of the company's own real estate. From this perspective, the requirements for the extended trade tax reduction may be met in individual cases in accordance with the present ruling, even if other circumstances exist which at first sight appear to be detrimental to the reduction.