The Grand Senate of the Federal Fiscal Court (BFH) yesterday issued an important decision (Decision of 25 September 2018, GrS 2/16) on the so-called extended trade tax property reduction (Section 9 no. 1 sentence 2 GewStG), which is of great practical importance for property companies.
Commercial property owners are subject to two property taxes: Property tax and trade tax. In order to mitigate this double taxation, the legislator has introduced the so-called extended trade tax property reduction, which results in a trade tax exemption on property income for companies that exclusively manage their own property and also their own capital assets.
The "exclusivity requirement" often causes legal uncertainty in practice. Many property companies do not hold their property directly, but via fiscally transparent subsidiary partnerships (GbRs, KGs), which are not themselves trade taxable entities. For trade tax purposes, the income is consolidated at the level of the commercial parent company and the question then arises as to whether the indirect holding of the properties is detrimental to the trade tax exemption of the income.
The Grand Senate has now clarified this issue in favour of the taxpayer. The real estate held in the transparent subsidiary partnerships is attributed to the parent company in accordance with the general principles of income tax law and treated as its own real estate. The indirect holding of the real estate is not detrimental to the extended property deduction.
Practical tip: The decision of the Grand Senate only concerns the holding of shares in asset-managing subsidiary partnerships. Holdings in commercial subsidiary partnerships are detrimental to the extended property deduction at the level of the parent company. Property companies should urgently review their structure with regard to the new case law. It may make sense to reorganise under company law in order to improve trade tax efficiency within the corporate group on the basis of the Grand Senate's decision.
Yours TAXGATE Team will be happy to answer your questions at any time.
