Reclassification of losses from commercial activities

If a general partnership, limited partnership or other partnership carries out an original commercial activity in addition to its actual non-commercial activity, its activity is deemed to be a commercial business in its entirety (section 15 (3) no. 1 sentence 1 of the German Income Tax Act (EStG)). According to established case law of the German Federal Fiscal Court, the commercial activities of the partnership are not requalified the rest of the partnership’s activities in certain minor cases: The original commercial net sales may not exceed 3 % of the total net sales (relative limit) and at the same time the maximum amount of EUR 24,500 in the assessment period (absolute limit). A regulation introduced in December 2019 (section 15 (3) no. 1 sentence 2 EStG) also clarifies that it is irrelevant for the reclassification whether profits or losses are generated. This supplementary regulation is also to be applied for assessment periods prior to 2019 (section 52 (23) sentence 1 EStG). In its ruling of June 30, 2022 (Case No. IV R 42/19), the German Federal Fiscal Court had to decide whether the principles on reclassification, marginal limit and new regulation also apply to an asset-managing civil law partnership (Gesellschaft bürgerlichen Rechts, GbR).

In the case in question, a civil law partnership managing assets declared negative income from renting and leasing in the amount of EUR 19,775 on the one hand and commercial losses in the amount of EUR 6,651 from the operation of a photovoltaic system on the other hand for the year 2012. The total net turnover amounted to EUR 113,484, of which net turnover of EUR 8,472 (= 7.46 %) was attributable to the operation of the photovoltaic system. The tax office qualified the losses overall as income from commercial activity. This was because the civil law partnership had carried out a commercial activity with the operation of the photovoltaic system, which had “rubbed off” on the remaining asset management activity. In the subsequent legal action, the tax court of first instance and the German Federal Fiscal Court confirmed the opinion of the tax office.

According to the regulation introduced in December 2019, the asset-managing activity of the civil law partnership is to be qualified as a commercial activity as a whole, even in the case of a loss generated in the commercial area by way of reclassification. For this (as before), it is only a prerequisite that it is an independent commercial activity which can be separated from at least one other activity of the partnership which, viewed in isolation, would lead to another type of income and which is to be affected by the reclassification. This is the case here. The reason for this is that the civil law partnership could easily carry out its asset-managing activity without generating electricity through the photovoltaic system and vice versa. The previous case law of the German Federal Fiscal Court from 2018, according to which losses from an original commercial activity did not lead to the reclassification of the asset-managing activity of a civil law partnership, is thus obsolete. Moreover, it is not constitutionally objectionable that the new regulation is also applicable to assessment periods prior to 2019.

The marginal limit developed by the German Federal Fiscal Court (max. 3 % original commercial net sales and max. EUR 24,500 absolute) also applies after the introduction of the new regulation. This is because the new regulation merely clarifies that the diminishing effect is triggered by the commercial activity and not by the positive or negative result achieved from it. In this context, a higher marginal limit is not to be applied to a mixed-activity asset-managing civil law partnership, nor can the relative limit be waived and only the absolute limit of EUR 24,500 be applied. In the case in question, the civil law partnership exceeded the (relative) marginal limit with the consequence that it had carried out a commercial activity overall.


The legal consequence of reclassification can be avoided by founding a sister partnership of the same person to which the commercial activity is outsourced. This may, however, lead to further questions regarding the co-entrepreneurial division of businesses or the recognition of special business assets. With regard to the reclassification effect triggered in the dispute by the operation of a photovoltaic system, the German Annual Tax Act 2022 provides for relief in the form of income tax exemption for certain photovoltaic systems.