In its ruling on July 8, 2025 (Ref. 6 K 6040/22), the Berlin-Brandenburg Finance Court declared that the leasing of operating facilities by a property-owning company constitutes an activity that is detrimental to the extended trade tax reduction, even if the leasing is carried out as a trustee for the owner of the operating facilities (so-called trust model). According to the Finance Court, it is irrelevant whether the property-owning company intends to make a profit from this activity.
This ruling is relevant for real estate companies, as it calls into question a structure that is commonly used and is likely to trigger a need for action on the part of a significant number of affected companies.
An appeal has been lodged against the ruling (file number at the Federal Finance Court (BFH) III R 27/25).
German Trade Tax and Extended Trade Tax Reduction
Corporations based in Germany maintain a business operation by law and are therefore subject to trade tax in Germany. This applies even if they only generate income from renting and leasing, which would otherwise be considered asset management.
However, to avoid discrimination against individuals and partnerships that own real estate and are not subject to trade tax as such, Germany gives corporations and deemed commercial partnerships the option of claiming the so-called extended trade tax reduction.
The requirements for the extended trade tax reduction are simplified as follows:
- The company exclusively manages and uses its own real estate.
- The company does not lease operating facilities to tenants.
- The company does not provide any other commercial services, i.e., services such as concierge or security services are not permitted.
Whereas in the past any provision of operating facilities or other services that were not considered a necessary part of property management was detrimental, the law now provides for a 5% de minimis threshold for such income generated from direct contractual relationships with the tenants of the real estate. Although this income is not covered by the extended trade tax reduction and is therefore subject to trade tax and must be recorded separately, this does not mean that trade tax is also payable on the income from renting the property.
Division of Real Estate and Operating Facilities into Separate Companies
Because it may be unavoidable in some cases to also provide the tenant with certain operating facilities (such as an existing freight elevator or the famous grease separator), it is common practice for the operating facilities to be purchased not by the owner and landlord of the property, but by a separate company (hereinafter FixCo) and to be made available to the tenants by FixCo.
The usual procedure in practice:
- FixCo acquires the operating facilities.
- FixCo leases them to the tenant.
- The property itself continues to be leased by the company that owns the property.
This generally remains unproblematic in terms of trade tax if FixCo provides the operating facilities to the tenant on the basis of its own lease agreement.
The Hidden Trust Model
The so-called (hidden) trust model is a variant of the structure described above and is not uncommon, particularly when leasing commercial real estate.
Typical features of the trust model:
- The property-owning company leases the operating facilities to the tenant as a trustee for FixCo under a uniform contract. The aim is generally to avoid having to do separate contracts with the tenant for buildings and operating facilities.
- It is not apparent to the tenant that the operating facilities are not provided by the landlord of the premises.
- The property-owning company generally does not receive any separate remuneration for its trust activities.
This arrangement has been used in practice, for example, when, after the acquisition of an already leased property, the land and operating facilities were to be divided, and tenants' cooperation was necessary for the division of the lease agreements.
Fiduciary Activity Is Not a Necessary Part of Property Management and Use
The Finance Court Berlin-Brandenburg has now ruled that the (hidden) fiduciary activity of the property-owning company as trustee for FixCo generally constitutes an activity that is detrimental to the extended trade tax reduction and therefore precludes the use of the extended trade tax reduction.
According to the court, the fiduciary leasing of the transferred assets did not serve the purpose of managing and using the company's own real estate, nor was it to be regarded as a necessary part of real estate management and use. In its supplementary remarks, the court also based this on the fact that direct contact with the respective tenants and the replacement of the externally visible landlord of the operating facilities did not seem impossible, as there were only a limited number of tenants.
The fact that the trust agreement provided that the property-owning company should only receive reimbursement for the costs it incurred was also irrelevant to the assessment. This is because, in any case, a comprehensive claim for reimbursement of expenses fulfils the criterion of remuneration. The court did not decide on the question of whether the remunerative or non-remunerative nature of the activity was actually relevant. The question of whether an activity is only detrimental to the extended trade tax reduction if it is carried out for remuneration is currently pending before the Federal Fiscal Court in proceedings against a ruling by the Baden-Württemberg Fiscal Court under file number III R 23/23.
Status of Proceedings
The plaintiffs have lodged an appeal with the Federal Fiscal Court under file number III R 27/25. It therefore remains to be seen whether the Federal Fiscal Court will uphold the decision of the tax court.
Key Considerations for Companies in the Real Estate Industry
Companies that have implemented the hidden trust model in the past should analyze their existing structures and, if necessary, adjust or modify them as soon as possible to help eliminate future risks associated with the extended trade tax reduction.
As part of the analysis, companies should:
- Review existing structures and leases, and
- Assess the risks in light of the Berlin-Brandenburg Finance Court's ruling.
The analysis should take into account that, in determining whether the fiduciary activity was a necessary part of property management and use, the tax court also considered that, in the case in question, the landlord could in principle have pursued other arrangements due to the small number of tenants. The question therefore remains open as to whether the trust model is also detrimental to the extended trade tax reduction if doing separate rental agreements for real estate and operating facilities is not an economically viable alternative, e.g. due to a large number of tenants. In this case, the hidden trust model may be regarded as a necessary part of property management that is not detrimental to trade tax.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
