# No Extended Trade Tax Reduction for GmbH Formation for Third Parties > The BFH denies the extended reduction where a GmbH forms companies for others with shares intended for prompt transfer. Source: https://www.mtrlegal.com/en/no-extended-trade-tax-reduction-for-gmbh-formation-for-third-parties/ · Language: en · Updated: 2026-10-22 --- ## BFH Denies Extended Reduction for Third-Party GmbH Formation The Bundesfinanzhof (BFH, Federal Fiscal Court) ruled on 18 June 2026 that the extended reduction of trade income under § 9 No. 1 sentence 2 GewStG (German Trade Tax Act) is not granted if a corporation forms GmbHs for others and the shares are intended from the outset for prompt onward transfer. The decision was issued under [case reference III R 29/23](https://www.bundesfinanzhof.de/de/entscheidung/entscheidungen-online/detail/STRE202650172/) and was marked as a decision not officially published. At the centre of the case was the question of whether, in the 2016 assessment period, a GmbH had exclusively managed and used its own real property and, in addition, its own capital assets. The BFH answered this in the negative. In its view, the claimant exceeded the framework set by § 9 No. 1 sentence 2 GewStG because, in several cases, it had formed companies not for the long-term use of its own assets, but for its shareholders or persons related to them, and had subsequently transferred them. ## Facts of the Proceedings III R 29/23 ### Claimant, Corporate Purpose and Shareholding Structure The claimant was a GmbH formed in 2014. Two GmbHs each held a 50 per cent interest in it. According to the articles of association, the corporate purpose included in particular the management of its own assets, the acquisition of real estate and the acquisition of shareholdings in other companies. The claimant did not employ any staff of its own. Since its formation and also in the disputed year 2016, two managing directors had been appointed with sole power of representation. In 2016, the claimant sold a property that it had already acquired in 2014 and sought the [extended reduction under](https://www.mtrlegal.com/fg-muenchen-zu-kuerzerer-grundstuecksaufteilung-bei-verkauf-im-jahr/) § 9 No. 1 sentence 2 GewStG for the profit generated from this sale. ### Formation and Transfer of Several Corporations According to its own statements, the claimant had formed around 40 corporations in the years from 2014 through 2018 and had provided them with its own funds in accordance with their investment requirements. In 2015 and 2016, it sold shares in several GmbHs to its shareholders. From 2017 onwards, shares were also transferred to another company, one of whose managing directors was also a managing director of the claimant. The BFH focused in particular on a series of GmbH formations and subsequent share transfers. These concerned companies whose shares were transferred, in some cases within a few months and in any event within short periods, to shareholders or persons related to them. In addition, shares in four real-property-owning companies were sold to third parties. The transactions highlighted for the proceedings included in particular: - formations of several real-property-owning GmbHs in the years 2014 to 2017, - subsequent transfers of shares to the shareholders or related persons, - a shareholding sold in the disputed year 2016 in a previously formed company, - a GmbH formed in the disputed year whose shares were transferred in the following year, - further sales of shares in real-property-owning companies in later years. ## Dispute Over the Extended Reduction for Real Property ### Position of the Tax Office The Finanzamt (tax office) initially assessed the trade tax assessment amount for 2016 on an estimated basis and subject to review. Following the claimant’s objection, it amended the notice, but continued to deny the extended reduction sought by the claimant. Following an external audit, the tax office took the view that the claimant had systematically formed subsidiaries and subsequently sold them. After their formation, the respective GmbHs had entered into real estate purchase agreements; the transfer of the GmbH shares had taken place before or at the same time as the transfer of benefits and burdens relating to the properties. The tax office did not see this as mere income generation from assets, but as an activity aimed at reallocating assets. By amended notice dated 10 May 2021, the tax office reassessed the trade tax assessment amount and took into account only the simple reduction under § 9 No. 1 sentence 1 GewStG. It lifted the reservation of review. The claimant’s objection was unsuccessful. ### Decision of the Finanzgericht Berlin-Brandenburg The Finanzgericht Berlin-Brandenburg (Finance Court of Berlin-Brandenburg) upheld the action by judgment of 19 September 2023. It considered the requirements for the extended reduction to be met and found that the claimant’s activity had not been commercial in nature. According to the Finanzgericht’s assessment, the claimant was to be regarded neither as a production-like company founder nor as a securities trader operating in a trader-like manner. What was material for the Finanzgericht was that the claimant had not approached the market. Rather, it had carried out the majority of the company formations for its shareholders or persons related to them. In this context, the Finanzgericht Berlin-Brandenburg expressly held that the formation of subsidiaries or the acquisition from a shelf-company founder, the search for an investment object and the conclusion of contractual and financing agreements before the share transfer did not constitute trader- or producer-typical activity. It also found that the sale of all shares in a real-property-owning corporation was not a countable object within the meaning of the three-object threshold. In legal terms, in addition to § 9 No. 1 sentence 2 GewStG, the lower court also relied on § 2 para. 1 sentence 1 GewStG and § 15 para. 2 sentence 1 EStG (German Income Tax Act). The judgment of the Finanzgericht also referred to parallel proceedings before the same panel. In those parallel proceedings, the Third Senate of the BFH later, by judgment of 3 June 2025 – III R 12/22 – dismissed the claimant’s appeal on points of law as unfounded and confirmed the denial of the extended reduction. ## BFH Sets Aside the Lower Court’s Judgment ### Tax Office’s Appeal on Points of Law Successful The BFH upheld the tax office’s appeal on points of law. The judgment of the Finanzgericht Berlin-Brandenburg was set aside and the action was dismissed. The claimant must bear the costs of the entire proceedings. In the view of the BFH, the Finanzgericht had erred in law in assuming that the requirements of [§ 9 No. 1 sentence 2 et seq. GewStG](https://www.gesetze-im-internet.de/gewstg/__9.html) had been met in the disputed year. For the BFH, the decisive factor was not whether the claimant had appeared externally on the general market with its activity. Participation in the market recognisable to third parties is not a prerequisite for denying the extended reduction. ### Exclusivity Requirement as the Central Standard The BFH again emphasised that corporations are subject to trade tax by virtue of their legal form. For companies that exclusively manage and use their own real property or, in addition, manage and use their own capital assets, the extended reduction may, upon application, replace the simple reduction. However, this preferential treatment requires the exclusive management and use of the taxpayer’s own real property and, where applicable, in addition its own capital assets. According to case law, the exclusivity requirement is to be understood qualitatively, quantitatively and temporally. A breach leads to the complete denial of the extended reduction. What is decisive is not the corporate purpose stated in the articles of association, but the actual management of the business. Ancillary activities are harmless only by way of exception if they serve the management and use of the taxpayer’s own real property in the strict sense and are to be regarded as a necessarily required part of an economically sensible structure for the management and use of the taxpayer’s own real property. The additionally permitted activities are exhaustively regulated in § 9 No. 1 sentences 2 and 3 GewStG. ## No Preferential Asset Management Where Formation Is for Others ### Management of Own Capital Assets The BFH confirmed that the management and use of the taxpayer’s own capital assets, in addition to the management and use of its own real property, may in principle be a permitted activity within the meaning of § 9 No. 1 sentence 2 GewStG. Shareholdings in corporations can also constitute capital assets and be attributable to asset management. According to case law, however, management and use means deriving income from substance values that are to be preserved. Mere reallocation may be harmless as long as it does not constitute the defining element of the activity. If the exploitation of substantial assets by means of reallocation decisively takes precedence over income generation, mere asset management no longer exists. ### GmbH Formation for Prompt Transfer According to the BFH, there is no pure management and use of the taxpayer’s own capital assets if a GmbH is established for others. This applies in particular where, at the time of formation, the objective already exists to onward-transfer the GmbH shares shortly thereafter so that third parties can generate income from the management and use of capital assets. In such a case, according to the BFH’s decision, the formation of the GmbH serves to create an asset that is tradable or intended for transfer. This differs from the mere use of one’s own substance values to generate income. The BFH emphasised that this also applies if it was intended from the outset to sell the GmbH shares to affiliated companies or their shareholders. Participation in the market recognisable externally is not required under the decision. ## Significance of the Separation Principle ### Shareholders and Corporation as Separate Legal Persons A key point of the decision concerns the tax law separation principle. Corporations are independent legal persons under civil law and tax law. Therefore, transactions of a GmbH cannot be regarded as harmless solely because the contractual partner is a shareholder or a related person. The BFH clarified that contractual exchange transactions or third-party transactions can generally also exist where the contractual partners come from the circle of shareholders or from persons close to them. For the exclusivity requirement, it is therefore irrelevant whether the counterparty is attributable to the corporate group or shareholder environment. ### Error by the Lower Court In the view of the BFH, the Finanzgericht had wrongly assumed that an activity breaching the exclusivity requirement presupposed that it was directed at the general market. This assumption did not support the lower court’s decision. Furthermore, according to the BFH’s reasoning, it could not be decisive that the majority of the formations were carried out for shareholders or persons related to them. Precisely because of the separation principle, this does not preclude a harmful activity. ## Application to the Case in Dispute ### Findings of the Finanzgericht Were Sufficient for the Decision The BFH considered the matter ready for decision. On the basis of the lower court’s findings and the claimant’s own submissions, the BFH was satisfied that, in the disputed year, the claimant had not exclusively managed and used its own real property and, in addition, its own capital assets. The Finanzgericht had found that the claimant had undertaken the formation of several GmbHs for the shareholders or persons related to them. These companies were in some cases transferred within a short period. The BFH highlighted that, in the disputed year, the claimant sold a previously formed company after only ten months and, in the disputed year, also formed another GmbH for shareholders or related persons, the transfer of which was completed in the following year. ### Activity Like a Producer for Others The BFH regarded these transactions as an activity in which the claimant acted like a producer for shareholders or persons related to them. The claimant had not formed the companies concerned exclusively with the objective of holding the shareholdings itself and generating income from them. In the view of the BFH, the overall assessment confirmed that these were not isolated exceptions due to special circumstances. Rather, the structure – forming companies and promptly selling or onward-transferring the shares – was intended from the outset in certain cases. ### No Harmless Ancillary Activity According to the decision, undertaking the formation of GmbHs for others is not among the permitted activities listed in § 9 No. 1 sentence 2 et seq. GewStG. This applies even if the activity is carried out for shareholders or persons related to them. The BFH also did not regard this as a harmless ancillary activity. The formations did not serve the management and use of the claimant’s own real property. Nor could they be regarded as a necessarily required part of an economically sensible management and use of the taxpayer’s own real property or own capital assets. ## Three-Object Threshold Not Material to the Decision The BFH did not have to conclusively clarify under what conditions, in the case of GmbH shares, a trader-typical reallocation can decisively take precedence over the use of assets. In light of the established breach of the exclusivity requirement, this was no longer relevant. However, the Senate noted that it did not follow the tax office’s argument that the three-object threshold developed for real estate and real-property-managing partnerships should be applied in modified form to the transfer of GmbH shares. This was justified, among other things, by the inapplicability of § 39 para. 2 No. 2 AO (German Fiscal Code) to GmbHs and the lack of comparability between the transfer of GmbH shares and transfers of real property. The BFH left open whether the extended reduction would additionally have had to be denied in the case in dispute for other reasons. It was therefore not material to the decision, among other things, whether the claimant had managed and used its own real property throughout the entire disputed year. ## Classification for Real-Property-Managing Corporations The decision illustrates the strict requirements for the extended reduction under § 9 No. 1 sentence 2 GewStG. Even an activity outside the exhaustively privileged area can lead to the complete denial of the extended reduction. This also applies where the activity in question is not carried out vis-à-vis an open market. For corporations with real property, it is particularly important that transactions within the shareholder environment are not automatically harmless for the preferential treatment. The separation principle means that transactions with shareholders or related persons must also be assessed independently. The decision therefore primarily concerns cases in which real-property-managing companies, in addition to real estate management, establish shareholding structures, form companies or promptly transfer shares. The decisive factor always remains whether there is still exclusive management and use of the taxpayer’s own real property and, where applicable, its own capital assets, or whether activities going beyond this are being carried out. ## Tax Law Advice from MTR Legal The judgment III R 29/23 shows that the extended reduction under § 9 No. 1 sentence 2 GewStG is closely linked to the actual management of the business and that corporate-law structures must be carefully classified in terms of their tax consequences. MTR Legal Rechtsanwälte advises companies, investors and high-net-worth individuals on tax law issues in connection with real estate, shareholding structures and corporate groups. Further information can be found at [legal advice in tax law](https://www.mtrlegal.com/rechtsberatung/steuerrecht/).