Trade tax exemption – A question of proportionality
In the case that got to the tax court, the cooperative making the claim had dealt exclusively, in the period from 2014 to 2016, with the letting of property - both residential properties as well as commercial space - and, therefore, had filed applications to reduce their trading profits. A commercial tenant had leased a retail store where she generated profits below the trade tax exemption threshold. In 2014, this tenant also wanted to rent a residential property for which, however, members of the cooperative were given priority. That is why, in December 2014, the tenant purchased a cooperative share (< 0.1%) and, subsequently, moved into a residential property. After a tax audit, the local tax office was of the view that a reduction in the cooperative’s trading profits had to be ruled out. The legal action brought against this decision before Düsseldorf’s tax court (Finanzgericht Düsseldorf, FG) was successful, as the cooperative had satisfied the requirements for a reduction in trading profits. The FG, in its ruling of 22.4.2021 (case reference: 9 K 2652/19), did indeed confirm that the real estate was partially used for the commercial operations of a cooperative member; however, this shareholding was of minor importance since this member held less than 1% in the cooperative and the tenant herself was not burdened with trade tax. Moreover, this was an isolated case and ruling out the beneficial reduction would not be proportionate and, therefore, unreasonable.
Please note: You should keep in mind the Federal Fiscal Court case law according to which this relief may not be denied if the shareholder that uses the real estate that has been made available generates income that is not subject to trade tax.