German trade tax law knows the so-called extended reduction. § 9 no. 1 sentence 2 of the GewStG stipulates that companies which manage (let) only their own real estate do not have to pay trade tax. As a result, for example, a Immobilien-GmbH pays only 15.8% corporation tax and solidarity surcharge.

An “exception to the exception” applies to the so-called subletting model. Here, an organ company leases land to the organ carrier and vice versa. For these cases, the Bundesfinanzhof decided that the landlord company could not benefit from the taxation with only 15.8%, while the tenant company remained deductible for the corresponding expenses with a tax burden of around 30%. This would disturb the correspondence between expenses and income ordered by § 2 (2) sentence 2 GewStG.

In a recent decision (judgment of 11 July 2024, III R 41/22), the BFH once again confirmed this view.

1. Principles of the so-called subletting model

The so-called subletting model would give rise to a tax advantage within the organ circle. The design presupposes, first of all, the existence of a corporate and trade tax organization. The organization consists of an organ carrier (usually a GmbH) and at least one organ company. It is distinguished by the fact that it is dependent on the organ carrier, the dependence usually being caused by a more than 50% participation of the organ carrier in the organ company.

So there are at least 2 companies, one of which owns the land for rent. The other company, in case of dispute it was another organ company, leases the property from the landlord company. Subsequently, either self-use or a further rental to third parties takes place, the latter being relevant in the event of a dispute.

This so-called subletting model now leads to the following (tax) result: