Extended reduction of trade income in the case of co-letting of permanently attached operating equipment – Federal Fiscal Court confirms strict standards and clarifies open questions

In its ruling of September 25, 2025 (IV R 31/23), the Federal Fiscal Court (BFH) clarified important principles regarding the extended reduction of trade income pursuant to Section 9 No. 1 Sentence 2 of the Trade Tax Act (GewStG) and, at the same time, the conditions under which the co-letting of operating facilities does not exclude the desired tax relief. The decision provides clarity for property managers and those liable for trade tax who combine real estate income with additional operational services.

What was the issue?

The dispute centered on whether a GmbH & Co. KG could claim the extended reduction in trade income for trade tax purposes even though it leased a commercial building that included a freight elevator permanently attached to the building. The tax office denied the extended reduction on the grounds that the co-leasing of operating equipment was detrimental. The Federal Fiscal Court overturned the previous ruling and referred the case back.

Legal framework

Extended reduction of trade income (Section 9 No. 1 Sentence 2 GewStG)

The aim of this provision is to exempt income from the mere administration and use of own real estate from trade tax. One of the prerequisites is that no operational services beyond the mere administration of real estate are provided.

Key finding of the Federal Fiscal Court (BFH)

• Operating facilities are not normally considered real estate. Co-leasing them is generally detrimental.

• In exceptional cases, co-leasing may not be detrimental to tax benefits if it is an absolutely necessary part of economically sensible use of the property and represents an insignificant secondary business.

• The functional orientation of the building is decisive: in a department store, a freight elevator is typical and therefore not detrimental.

• Quantitative criteria must be examined: operating facilities may only be of secondary importance.

Practical implications

• The decision confirms that a differentiated case-by-case assessment remains necessary.

• The co-letting of permanently attached technical equipment does not automatically lead to the exclusion of the extended reduction.

• The specific determination of trade income is also necessary if the allowance is not reached, as the loss deduction must be made beforehand.

Conclusion

The IV R 31/23 ruling provides important clarity: not every co-letting of operating facilities leads to the loss of the extended reduction. The decisive factors are the function, economic connection, and scope of the co-let facilities. In practice, this means that careful analysis and documentation of the building's function and equipment remains essential.