Date:
This article was written by
Certified Tax Advisor, Lawyer, Director, National Office Tax & Legal
Senior Consultant, National Office Tax & Legal
For determining trade income, the Trade Tax Act (Gewerbesteuergesetz, GewStG) provides, amongst other things, that rents deducted as business expenses must be partially added back. This addition requires that the leased assets constitute notional fixed assets. In three judgments of 15 January 2026 (Ref. III R 39/22, Ref. III R 3/23 and Ref. III R 28/24), the Federal Fiscal Court (BFH) ruled that even hotel rooms and staff accommodation rented on a short-term basis may count as notional fixed assets and that the rent paid therefore potentially falls under the addition provision of Section 8(1)(e) GewStG.
In the first two cases, two companies regularly booked accommodation for their employees at various work locations. In the third case, a travel and conference organiser regularly booked rooms and function rooms in conference hotels for subletting them to the respective organisers of conferences, etc.
In all three cases, the taxpayers deducted the hotel and accommodation expenses as business expenses and made no corresponding adjustments in their trade tax returns. Consequently, these expenses reduced trade tax base. Following tax audits, tax authorities took the view that these expenses constituted rent for notional fixed assets and, pursuant to Section 8(1) of the Trade Tax Act (GewStG), were to be partially added back when determining the trade tax base.
The lower tax courts decided in favour of the companies at first instance. The Federal Fiscal Court (BFH) took a more nuanced view of the legal situation and, whilst overturning lower tax court decisions, referred the cases back to the lower tax courts due to a lack of sufficient information as to whether the accommodation constituted notional fixed assets and whether the payments in question were entirely rents. The lower tax courts must now rule on the cases again in accordance with the criteria established by the BFH.
Whether a rented asset is to be included in the business’s notional fixed assets depends on its intended purpose in each individual case. It is not sufficient for the asset merely to serve the business in some way and for the rent to be deducted as business expenditure. On the other hand, the asset need not serve the business directly or immediately, nor need it be essential, nor does it need to relate to the core business. It is sufficient if it is recognisably intended, both objectively and subjectively, to serve the business operations on a permanent basis.
Recurrent short-term letting of accommodation is a substitute for, or an alternative to, a decision to let or use the property on a long-term basis. Therefore, an addition may be considered, on the one hand, if the same accommodation is used recurrently, and, on the other hand, if the properties rented on a short-term basis are interchangeable with one another, such that the recurrent short-term rental of various properties is equivalent to a long-term rental. Interchangeability is again determined by the intended use of the accommodation for the specific business operation.
In the case of property, however, it is not only the type, facilities and any additional services that are of key importance, but above all the location. When recurrently renting property or accommodation on a short-term basis for clients or employees, it is therefore not simply a matter of asking whether comparable property or accommodation, in terms of type and facilities, is consistently required and rented; but it is also crucial to determine whether such properties or accommodation are recurrently required in the specific location or within the catchment area or vicinity of a particular place or place of work of the employees. The location of the property is only irrelevant in exceptional cases; for example, where accommodation is rented in any location to attract walk-in customers wherever the relevant goods or services are offered.
In addition, the BFH points out that an addition for trade tax purposes under Section 8(1)(e) GewStG depends on the existence of rents. In addition to the provision of accommodation, it is therefore crucial whether additional services such as room cleaning, breakfast, or the use of wellness facilities influence the legal classification of the contract in question, or whether, in the specific case, these are merely ancillary services that take a back seat compared to the main service of ‘providing accommodation’.
Note:
In the identical state decrees dated 6 April 2022, German tax authorities have so far taken the view that, for reasons of simplification, no trade tax adjustment is made in the case of contracts for short-term hotel accommodation. However, the BFH does not share this view and makes it clear in all three decidions – and by no means limited to these decrees, but generally – that neither tax courts are not bound by administrative instructions interpreting the law. A self-imposed obligation on the part of the administration that the courts must observe exists only in exceptional cases within the scope of a discretion granted to it by law, such as in matters of discretion, equity, classification or flat-rate assessment.