German Federal Fiscal Court on Extended Property Deduction in the Case of Co-Letting of Operating Facilities
Legal Insights Germany
March 03, 2026The Federal Fiscal Court (BFH) rules that the co-rental of a freight elevator (operating facility) may constitute a harmless ancillary business for the application of the so-called extended property deduction pursuant to Section 9 No. 1 Sentence 2 et seq. of the German Trade Tax Act (Judgement of September 25, 2025 – IV R 31/23).
Background
According to Section 9 No. 1 Sentence 2 of the German Trade Tax Act (GewStG), trade income is to be reduced by the amount attributable to the management and use of the company's own real estate and is therefore not subject to trade tax (so-called extended property deduction). A prerequisite for this is, in particular, that the respective company exclusively manages and uses its own real estate or, in addition to its own real estate, its own capital assets.
For these purposes, operating facilities are not considered real estate (Section 68 (2) sentence 1 No. 2 of the German Valuation Act (BewG), so that their co-letting is detrimental to the extended property deduction. The distinction between building components and operating facilities therefore depends on whether the facility is necessary for the general use of the building or, more specifically, whether it serves directly to carry out the business. Freight elevators used to transport goods offered in the department store are considered operating facilities. Unlike passenger elevators and escalators, which replace immovable stairs in a multi-story building, they do not have a direct building function, but rather an operational function (see, for example, BFH ruling of April 11, 2019 - III R 36/15).
The only exception to this is if the co-letting of the operating facility permanently attached to the property or building is considered a harmless ancillary business. This can be assumed if it is an essential part of the economically sensible management and use of one's own property and does not exceed the quantitative limits of a secondary business.
Decision of the Federal Fiscal Court
In the case before the Fourth Senate of the BFH, the building was objectively and functionally designed for the operation of a multi-story department store or warehouse. Leasing is only possible if the building has a freight elevator. This is the only way to ensure proper transport of goods between the sales and storage areas spread over several floors. Ultimately, the freight elevator is part of the typical infrastructure of a multi-story department store or warehouse that must be provided by the landlord for technical or structural reasons.
A business lease does not affect the deduction if the essential business assets that characterize the business are leased and these are exclusively the lessor's own (developed) real estate. If, in addition to the transfer of the property, a secondary activity is carried out that is to be regarded as an absolutely necessary part of the economically sensible management and use of the owner's own property, this does not constitute a harmful business lease.
Law clerk Bartosz Paniak contributed to this article.
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