No trade tax addback for rent paid to foreign trade fair companies

There is no addback for trade tax purposes for amounts paid by a German company arranging for participation in foreign trade fairs on behalf of others.

According to Sec. 8 no. 1 e Trade Tax Act one quarter of the total of (currently) one half of the rent paid for the use of immovable fixed assets in the ownership of another must be added back to the trading profit subject to trade income tax. In a case before the Supreme Tax Court the question arose if this would also apply for rentals paid by a GmbH to foreign trade fair companies for the provision and use of grounds in exhibition halls.

The GmbH had organized the participation in foreign trade fairs in its own name but on behalf of the Federal Republic of Germany and the State of Bavaria. It paid a fee for the space in the halls and for various other necessary and connected services. The rental expense was added back to trading profit by the tax office under the addback provision of the Trade Tax Act. The Supreme Tax Court, however, found that the add back is not justified.

First of all, there was no use of immovable fixed assets under the ownership of another. The GmbH acted on behalf of others which would preclude the assumption of fixed assets from the outset. The court went on to say that an addback under the trade tax regime presupposes that the assets were to be fixed assets of the lessee had he been the owner himself. But this does not apply for the GmbH, since there would be no reason for it to keep the specific exhibition ground constantly ready and for permanent use.

Supreme Tax Court judgment I R 57/15 of October 5, 2016 published on January 4, 2017

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