Generally, in Germany, it is presumed that an active trade/ business is being carried on where more than three properties are sold within a five-year period; properties that have been held for at least 10 years, however, are not taken into account. If an implicit intention to sell the property is present from the time the property is acquired, even the sale of one property can be damaging. The sale of property during or immediately after its construction is generally assumed to constitute evidence of an active trade. In a decision dated 19 February 2009, the German Federal Tax Court held that not only the construction of the property by the seller itself is damaging, but also that the activities of a general contractor should be assigned to the builder for purposes of this rule. There is some debate in the technical literature as to whether this decision is applicable only to the particular case of the general contractor and the builder being sister partnerships or whether the decision has general application.
If an active trade is deemed to be carried on, the assets (i.e. the property) would be treated as current assets and therefore no regular depreciation would be allowable. Furthermore, reliance cannot be placed on the extended trade tax deduction, according to which the lease income is exempt from trade tax, as this deduction is no longer available.
