The Bundesfinanzhof has ruled that real estate companies may claim the extended trade tax reduction under § 9 No. 1 Sentence 2 GewStG upon request, even in cases of a reverse operational split (umgekehrte Betriebsaufspaltung).
The extended trade tax reduction is available to companies that exclusively manage and use their own real property in addition to their own capital assets, and whose activities do not exceed the scope of private asset management. For these companies, the trade income may be reduced upon request by the portion attributable to the management and use of their own real property. The extended reduction is excluded if the company carries out an original commercial activity.
In the case at hand, the plaintiff was a real estate management company in which a natural person and a corporation held interests. During the years in dispute, the real estate management company leased part of the properties it held to the participating corporation. The tax auditor assumed that an operational split (Betriebsaufspaltung) existed and concluded that the requirements for the extended trade tax reduction were therefore not met. In an operational split, the purpose is directed from the outset toward participation in commercial transactions rather than toward asset management. However, an operational split only exists if the corporation, as the holding entity, holds a direct interest of more than 50 % in the other company. This was not the case in the dispute at issue.
An original commercial activity also does not arise in this case from a reverse operational split. Unlike in a typical operational split, the holding corporation is controlled by the operating corporation. The principle prohibiting attribution (Durchgriffsverbot) provides that the taxation of the holding company cannot be based on the circumstances of its shareholder. On this basis, no original commercial activity can be derived, and the extended reduction under § 9 No. 1 Sentence 2 GewStG is not excluded here.
Frequently asked questions
Frequently asked questions
Is the extended trade tax deduction available in a reverse business split (umgekehrte Betriebsaufspaltung)?
Yes. The BFH has ruled that real estate companies may apply for the extended trade tax deduction under § 9 No. 1 Sentence 2 GewStG even in cases of a reverse business split. A genuine commercial activity cannot be inferred from this structure, so the deduction is not precluded.
What is the extended trade tax deduction under §9 Nr. 1 Satz 2 GewStG?
It allows companies that exclusively manage and use their own real estate (and, where applicable, their own capital assets) to reduce their trade income by the portion attributable to the management and use of the real estate. The prerequisite is that the activity does not exceed the scope of private asset management. If the activity is genuinely commercial in nature, the deduction is excluded.
When does a classic Betriebsaufspaltung (business split) with trade tax consequences exist?
A Betriebsaufspaltung requires both a substantive and a personal interdependence. Where a corporation acts as the holding entity, it must hold a direct stake of more than 50% in the operating entity. In such cases, the activity qualifies as inherently commercial and precludes the extended trade tax reduction.
What distinguishes a reverse Betriebsaufspaltung (business split) from the classic form?
In a reverse Betriebsaufspaltung, the holding corporation is controlled by the operating corporation – not the other way around. Due to the prohibition on look-through taxation (Durchgriffsverbot), the circumstances of the shareholder may not be used for taxing the holding company. As a result, no genuinely commercial activity arises at the level of the holding company.
What is the significance of the look-through prohibition for the extended trade tax reduction?
The look-through prohibition prevents the taxation of the holding corporation from being based on the circumstances of its shareholder. As a result, a reverse business split (umgekehrte Betriebsaufspaltung) cannot lead to genuinely commercial activity of the holding company. The extended trade tax reduction therefore remains applicable.