The beginning of the factual trade tax liability depends on whether the business activity has already begun or whether mere preparatory activities have been undertaken which are still irrelevant under trade tax law. Expenses incurred for the latter do not reduce the trade income and also do not lead to the determination of a trade loss that can be carried forward. Against this background, the German Federal Fiscal Court had to clarify in its ruling of September 1, 2022 (Case No. IV R 13/20) the legal question as to when a commercial real estate trader is subject to trade tax and substantiated its previous findings on the relevant beginning of the commercial activity.
In the case in dispute, a real estate company with a different fiscal year from June 1 of one year to May 31 of the following year was established by contract dated January 2011. The object of the company as defined in the articles of association provided for the acquisition, management and disposal of real estate, i.e. the business of commercial real estate trading. In June 2012 (fiscal year 2012/2013), the company acquired properties developed with apartment houses. With regard to acquisition activities previously carried out (engagement of the broker in March 2012, inspection of the properties in April 2012, negotiations on the purchase agreement in May 2012), the company applied in the course of the trade tax return for the fiscal year 2011/2012 for the determination of a trade loss to be carried forward as of December 31, 2012 in the amount of EUR 1 million. This was rejected by the tax office because mere preparatory activities such as acquisition activities did not constitute a factual trade tax liability and therefore the determination of the declared trade loss was also excluded. The German Federal Fiscal Court finally took the same view and overturned the contrary ruling of the Fiscal Court.
Essential for the beginning of the factual trade tax liability is the initiation of the commercial activity, i.e. the participation at the general economic traffic. This is defined by the activity pursued by the company and, as a rule, defined in the articles of association, in the case in dispute the acquisition, management and disposal of real estate. According to this, a commercial real estate trader commences his business activity, which is relevant for the beginning of the factual trade tax liability, at the earliest with the acquisition of the first real estate. Only then is the trader in a position to participate at the general economic traffic and to offer his/her commercial services at the market. For this purpose, it is not relevant when the acquisition process begins, but when it ends, which is marked by the (effective) conclusion of the purchase agreement.
In the case in dispute, the real estate company acquired the properties in June 2012, i.e. in the fiscal year 2012/2013. Consequently, the obligation to pay trade tax only began in this fiscal year and not in the fiscal year 2011/2012 in the course of the acquisition activities. The fact that these activities were objectively recognizably aimed at preparing the real estate transactions is, in the opinion of the German Federal Fiscal Court, irrelevant for the beginning of the factual trade tax liability. The engagement of a real estate broker, the inspection of a potential purchase object or similar activities do not yet qualify the real estate trader to offer his services on the market. Such a wide interpretation regarding the beginning of the factual trade tax liability would also lead to significant difficulties in determining the concrete point by which the advertising activity begins. The requested loss carryforward was therefore not to be granted.
In contrast to income tax law, preparatory business expenses incurred in the period prior to the opening of the business and prior to the beginning of the factual trade tax liability are not deductible from the trade income. From a trade tax point of view, it therefore makes sense to aim for an early beginning of the business (offering the services on the market) in order to be able to claim as many expenses as possible.