Commercial property trading

Commercial property trading is not standardized by law but has been shaped by case law. It is assumed if more than three properties (“three-property limit”) are sold within a close temporal connection between acquisition or construction and sale, i.e. within approximately five years. Properties that are only sold after five years but within ten years of acquisition can nevertheless be attributed to commercial property trading if special circumstances arise. This is the case, for example, if the five-year period is only slightly exceeded, if many properties are acquired, if the main occupation is related to the trade or if there is a continuous stream of property purchases and sales.

In trade tax law, the assumption of commercial property trading regularly gives rise to follow-up questions regarding the use of the so-called extended property reduction within the meaning of Section 9 (1) sentence 2 of the German Trade Tax Act (GewStG). According to this, companies that exclusively manage their own real estate, i.e. do not buy and sell real estate at short notice, are not subject to trade tax on the resulting income; however, any proceeds from the sale of corresponding properties that were previously the subject of real estate management are also tax privileged. Commercial property trading would exclude this benefit as an activity that goes beyond mere administration. In its decision dated March 20, 2025 (case no. III R 14/23), the German Federal Fiscal Court (BFH) deals with the further requirements of commercial property trading in connection with the extended property deduction.

In the case in dispute, a German limited liability company (GmbH) sold thirteen properties; twelve of the thirteen properties had been part of the GmbH's fixed assets for at least five and a half years. Following an external audit, the tax office denied the extended property deduction applied for regarding trade tax. According to the auditor's findings, GmbH’s property management had gone beyond pure asset management and the property sales in the year in question would have exceeded the threshold for commercial property trading. The Fiscal Court Münster (decision of April 26, 2023, case no. 13 K 3367/20 G) took a different view. The BFH agreed with the detailed examination of the lower court and concluded that, despite the sale of thirteen properties in the sixth year and two further properties in the eighth year, there was no commercial property trading. The properties were only sold after the end of the five-year period on which the case law was based. In the case of dispute, there were also no special circumstances due to which there was at least a conditional intention to sell at the time of acquisition despite the five-year period being exceeded.

This could be assumed, for example, if preparatory measures had been taken within the five-year period between acquisition and disposal. Furthermore, a high number of disposals outside the five-year period or a main occupation in the construction sector could have indicated a conditional intention to sell at the time of acquisition/construction. Under the circumstances of the individual case, however, there were no sufficient indications of an intention to sell on the part of the GmbH from the outset. In this respect, the BFH differentiates itself from the decision dated June 15, 2004 (case no. VIII R 7/02); no legal principle can be inferred from the ruling that goes beyond the individual case, according to which the lack of indications of a conditional intention to sell during the five-year period is compensated for by the indication of a high number of sales shortly after the end of the five-year period. In such cases, commercial property trading cannot always be assumed.

The decisive factor in the present dispute was that the disposals were only due to the unforeseeable death of one of the two shareholder-managers at the age of only 55. Against this background, the high number of thirteen properties sold alone could not justify the assumption of a conditional intention to sell at the time of acquisition.