As a general rule, a company may apply for an extended trade tax deduction if the business is limited to the letting and leasing of its own real property – this is a tax privilege for pure asset managing companies, resulting in a trade tax exemption for rental income. According to case law of the Federal Tax Court, to claim the extended trade tax deduction, the taxpayer must engage in passive rental activities throughout the entire fiscal year. If the deduction is available, even capital gains derived from the sale of real property are not subject to trade tax, provided the taxpayer can demonstrate that passive rental activities will be engaged in until the end of the fiscal year. This may not be the case if all property, or in the case of special purpose vehicles, the only property, is sold within the fiscal year, since there will not be any property to manage for the remaining period of the year.
The Lower Court of Baden-Württemberg recently ruled that the extended trade tax deduction should be disallowed for a company owning one property (with a deviating fiscal year) that did not own the property at the beginning of the calendar year for which the tax was assessed. Although the decision is specific to the facts of the case, the court’s reasoning demonstrates that the trade tax privilege may also be disallowed for a specific fiscal year if the company did not own the property from the beginning of the calendar year. This decision also may affect structures where passive rental activities are engaged in throughout the entire fiscal year, even when the property was only acquired during the relevant year. Following the court’s decision, the income of such property may no longer be subject to the extended trade tax deduction in the calendar year of acquisition.
The decision is subject to confirmation by the Federal Tax Court (BFH).
Ansprechpartner
Dr. Bettina Lieber | Düsseldorf
Petra Peffermann | Frankfurt
