No commercial real estate trade in case of sales six months after the expiration of the five-year period

Decision of the Münster Fiscal Court dated April 26, 2023 – 13 K 3367/20 G: The case: The plaintiff was the successor of a GmbH (limited liability company) that sold a total of 13 properties to a single buyer through a notarial contract. One property exceeded the time period between acquisition and sale by five months, seven properties by six months, four properties by six and a half months, and one property by seven and a half months. The tax office rejected the requested extended deduction of trade tax profits for real estate companies according to § 9 No. 1 sentence 2 et seq. GewStG, as the activities of the GmbH went beyond mere asset management and exceeded the threshold for commercial property trading.

In the course of the legal proceedings, the plaintiff argued that there was no initial intention to sell the properties. The sale was prompted by the unexpected death of one of the managing directors of the GmbH, who was also indirectly involved. Since the sole heir did not wish to assume the bank guarantees of the deceased shareholder-managing director, who passed away at the age of 55, and a release from liability by the banks was declined, the properties were sold to repay the loans.

The Fiscal Court ruled in favor of the plaintiff. The appeal was permitted by the Federal Fiscal Court (BFH) due to the fundamental significance of the case and is pending there under file number III R 14/23.

The reasoning: The GmbH did not exceed the threshold for asset management.

In general, commercial property trading is assumed if at least four properties are sold within a close temporal connection of about five years. According to the BFH’s case law, the five-year period only has indicative significance and can be extended under special circumstances.

However, in the present case, no such circumstances were present. The GmbH did not engage in a related main activity with its purpose of renting and leasing. The (industry-standard) activities of other companies belonging to the same corporate group as the GmbH cannot be attributed to the GmbH due to the principle of fiscal separation. Neither can the time period exceeded by approximately six months be considered negligible, nor was there complete external financing. Rather, an indication against an existing intention to sell at the time of acquisition is that a long-term term was agreed upon for 80% of the loan amounts, which would have resulted in prepayment penalties.

The high number of sales also does not justify the assumption of a conditional intention to sell at the time of acquisition, as the sale was due to the unexpected death of the shareholder-managing director and thus an unforeseeable event.