The local tax court of Cologne (case reference: 9 K 1022/10) recently ruled on the trade tax addback for rental payments as introduced in the Business Tax Act 2008. In the case, a housing company involved in the renting of residential property did not own the real estate that it rented to tenants – the company rented the property from a third party.
The court decided that, according the wording of the Trade Tax Act, the trade tax addback should apply to the gross rental expense irrespective of the fact that the rented property is subsequently let to tenants. Although this view led to an effective 71 % trade tax burden in relation to the German GAAP pretax profit in the case decided, the trade tax addback was not considered to be in conflict with the German constitution.
The case is pending before the Federal Tax Court (case reference: IV R 55/10).
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