Trade tax liability: BFH clarifies
Commencement of the substantive trade tax liability of a partnership: BFH focuses on the actual activity
In its ruling dated February 20, 2025 (case no. IV R 23/22), the Federal Fiscal Court (BFH) decided that the start of a partnership’s substantive trade tax liability is determined by the activity actually carried out by the company. A strict distinction must be made between the level of the partnership and that of its partners. Mixing the two levels is not permitted.
The case in question involved a partnership that acquired an undeveloped plot of land in order to build a hotel on it. The BFH differentiated between two scenarios:
-
Sale after construction:
If the partnership acquires the property with the intention of selling the constructed hotel property to a third party after completion of the construction work, this constitutes an original commercial activity within the meaning of Section 15 (2) EStG. The expenses incurred can then be taken into account for trade tax purposes as soon as the property is acquired. -
Own operation of the hotel:
If, on the other hand, the partnership acquires the property with the aim of operating the hotel itself after completion with a changed shareholder structure, the construction merely serves to prepare the subsequent hotel operation. In this case, the promotional activity only begins with the actual commencement of hotel operations.
Important consequence:
The classification of the original intention when purchasing the property is decisive for the start of the trade tax liability. Even the difference between whether a property is to be sold or used by the owner leads to different tax treatment of expenses during the construction phase.
