BUNDESFINANZHOF Judgments of 28.11.2019, III R 34/17 and of 18.12.2019, III R 36/17

Extended reduction for real estate companies and co-letting of operating equipment; no extended reduction of the trade income of a real estate managing corporation in the case of co-letting of operating equipment.

Guidelines (in extracts)

  • If a contract for the lease of a plot of land with a building yet to be constructed stipulates that the expenses attributable to operating facilities are to be borne by the tenant and that operating facilities are not to be co-leased, a co-leasing of operating facilities detrimental to the utilisation of the extended reduction pursuant to § 9 No. 1 Sentence 2 GewStG is not to be assumed if the expenses attributable to individual operating facilities are not deducted but are included in the construction costs of the building.
  • Economic ownership is sufficient for the assumption of “own” real estate pursuant to § 9 No. 1 S. 2 GewStG.
  • The question as to whether an ancillary business is harmless with regard to the claim to the extended reduction of trade income depends on the circumstances in the respective survey period. It is not sufficient that the ancillary business in another survey period could be considered harmless.


The extended reduction of income from real estate companies in accordance with § 9 No. 1 sentence 2 of the Trade Tax Act (GewStG) is only applicable in principle if exclusively own real estate is managed or used. Inadmissible secondary activities such as the co-leasing of operating equipment generally lead to the exclusion of the reduction in trade tax.

Recommendation for action

These rulings follow on from the decision of the Grand Senate of the Federal Court of Finance of 25 September 2018 – GrS 2/16, according to which the concept of own property is to be determined according to income tax principles, and further develop the legal principles for the qualitative (non-harmful use of property or harmful secondary activity) and quantitative assessment (insignificance of the harmful extent) of the circumstances of the individual case for this reduction standard.

Even in the case of a constellation of cases which is harmless according to the qualitative assessment, a secondary activity, even to a minor extent, should be avoided at all costs, as there is no legally secure general limit of insignificance to date. It is therefore advisable for real estate companies to carry out a detailed examination of the property before the start of the rental activity in order to avoid the transfer of operating facilities or other assets in a way that would be detrimental to the short term by providing solutions tailored to the needs of each individual case.