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Add-backs for rental charges for trade fair stand space for trade tax purposes

Recently, the Federal Fiscal Court (Bundesfinanzhof, BFH) decided that rental charges for trade fair stand space that a company rents for exhibition purposes only have to be added back for trade tax purposes if it can be assumed that if the space belonged to the exhibiting company it would be held as its fixed assets.

Generally speaking, rental and lease payments that a business enterprise makes in return for the use of non-current immovable capital assets and deducts in its calculation of taxable earnings have to be added back again, to some extent, for the calculation of its trade tax-relevant trading profit (tax assessment basis). In this way, the earnings power of the business enterprise is supposed to be included irrespective of its equity and debt financing. Against this backdrop, a legal action had been brought by a GmbH [private limited company] whose business purpose was the development, manufacture and sale of machines. In the relevant years, the GmbH had repeatedly rented various exhibitions spaces and facilities at various trade fairs in order to present its products there. It deducted the costs of this from its profits but did not however add back any of these expenses for trade tax purposes. After a tax audit, the local tax office was of the view that the trading profit of the GmbH had to be increased again by a portion of the rental payments.

In the first instance, the Münster tax court, in its ruling of 9.6.2020 (case reference: 9 K 1816/18 G) decided that an add-back should not to be taken into account. The BFH then confirmed this ruling in its decision of 23.3.2022 (case reference: III R 14/21) and made reference to the fact that no notional fixed assets should have been assumed. For classification as a fixed asset, what matters is whether the business purpose of the respective company and also its specific operational circumstances (e.g., the significance of its presence at trade fairs within the distribution system practised by the company) require the permanent availability of an appropriate trade fair space.

Outcome: On this basis, in the opinion of the BFH, the Münster tax court had not erred in law when it had concluded that because of the occasional, short-term nature of the rentals - with due regard to the business purpose and the specific operational circumstances - the trade fair stand spaces should not be allocated to (notional) fixed assets.

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