Acquisition of an Enterprise: Single Unified Commercial Enterprise or Multiple Commercial Activities?

The question whether, for trade tax purposes, a single unified commercial enterprise or several commercial activities of a natural person exist is relevant, for example, with regard to the exemption under Section 11 of the German Trade Tax Act (Gewerbesteuergesetz; GewStG) or when offsetting profits and losses from the individual activities. The German Federal Fiscal Court (Bundesfinanzhof; BFH) addressed this issue in its judgment of January 28, 2026 (case no. X R 8/23) in the case of a person already engaged in commercial activity who acquired another commercial enterprise by universal succession.

Facts of the case

In the case at issue, a sole proprietor operated a wholesale business for waste materials and residues (recycling center). He also inherited in 2013 the scrap trade previously run by his mother, which had always been operated at the same address as the recycling center on a property accessible only via a single driveway. The sole proprietor maintained separate bookkeeping and accounting for both businesses and submitted, among other things, separate trade tax returns. The tax office, however, assumed that a single unified commercial enterprise existed since the takeover of the scrap trade and issued only one trade tax assessment notice. The fiscal court agreed.

Decision of the BFH

The BFH upheld the appeal to that extent, set aside the first-instance judgment and remanded the case to the fiscal court for further proceedings and decision.

A natural person may, unlike partnerships or corporations, operate several commercial businesses as a sole proprietor. When assessing whether one or several taxable objects exist for trade tax purposes, case law distinguishes as follows:

• For similar activities carried out by the same entrepreneur, there is a presumption that a unified enterprise will be assumed unless very special circumstances indicate otherwise. This presumption is, however, rebutted if there is no connection between the activities. It follows that even for similar activities a certain economic, organizational and financial connection must exist. The three features mentioned do not, however, have to be present cumulatively.
• For similar activities carried out by the same entrepreneur, there is a presumption that a unified enterprise will be assumed unless very special circumstances indicate otherwise. This presumption is, however, rebutted if there is no connection between the activities. It follows that even for similar activities a certain economic, organizational and financial connection must exist. The three features mentioned do not, however, have to be present cumulatively.

A universally valid definition of what constitutes "similar" activities is not possible given the diversity of economic life. For the question whether one or several commercial enterprises exist, one should assume a continuum of gradually increasing requirements for the degree of factual connection depending on the increasing degree of dissimilarity of the activities and, on this basis, make an assessment in each individual case.

An economic connection exists when the two activities support and complement each other, a significant indicator being that the offering of one activity complements the other or that customers of one area are occasionally referred to the other. An organizational connection may be present if the same premises and facilities are used, the same employees work in both areas, and procurement takes place wholly or partially jointly. A financial connection is indicated by the keeping of common cash registers, records or bank accounts and a unified profit determination, as well as unified cost bearing for both areas and the offsetting of losses from one activity by profits from the other.

If a commercial enterprise is transferred to a natural person who already operates a commercial enterprise, this in principle does not change the assessment to be made. Even in such a case, it must be determined according to the aforementioned criteria whether the two activities are similar or dissimilar, and then, within the framework of an overall assessment of the individual case, the factual connection must be examined and weighed. The fiscal court did not carry this out adequately in the first instance.

BFH “checklist” for the second instance

For the second instance the BFH gives the fiscal court the following "checklist":

• In the first step the fiscal court must ascertain and evaluate the facts necessary to assess the extent to which the two activities are similar.
• In the second step the fiscal court must determine the factual (economic, organizational and financial) connection between the two activities of the sole proprietor in terms of nature and extent and juxtapose it with the degree of (dis)similarity.
• In the second step the fiscal court must determine the factual (economic, organizational and financial) connection between the two activities of the sole proprietor in terms of nature and extent and juxtapose it with the degree of (dis)similarity.
• In the second step the fiscal court must determine the factual (economic, organizational and financial) connection between the two activities of the sole proprietor in terms of nature and extent and juxtapose it with the degree of (dis)similarity.
• With respect to the financial connection, it must be examined, among other things, whether one business benefited from the actual and/or personnel circumstances of the other business.