Five-year period and three properties limit – Criteria for commercial trading in property
In its judgement of 26.4.2023 (case reference: 13 K 3367/20 G) the tax court ruled in the case of a claimant who was the legal successor to a GmbH [German limited liability company] and who, in 2013, had sold 13 properties via a notarial agreement. All the properties had been purchased in 2007. The five-year period between acquisition and sale had indeed been exceeded by a few months for all the properties. Nevertheless, the local tax office refused to grant the extended trade tax deduction that had been claimed. The business activities of the GmbH had gone beyond those of a pure asset management company and had therefore breached the threshold to commercial trading in property. The claimant explained that the sale of the properties had been due to the sudden death of the managing director of the GmbH. The proceeds from the sale of the properties had to be used to pay off loans.
The legal action was successful; the Münster tax court was of the opinion that the limits of the asset management business had not been exceeded. All of the 13 properties had been sold only after the end of the five-year period. Moreover, contrary to the view of the local tax office, there had been no special circumstances on the basis of which it would have been possible to assume that commercial trading in property had taken place despite the five-year period having been exceeded. Nor had the five-year period been just marginally exceeded.
The fact that a longer term had been agreed for the loans that were taken out was an argument against there having been an intention to sell the properties already at the time of their acquisition. Prepayment penalties therefore had had to be paid as a result of the earlier repayment of the loans.
Please note: In the opinion of the judges at the Münster tax court, on its own the high number of properties that were sold could not lead to the assumption that commercial trading in property had taken place. The circumstances also had to be taken into consideration. Here, the intention to sell only emerged after the unexpected death of a shareholding managing director. Furthermore, the extended trade tax deduction should thus likewise not be refused.