Group Practice – Freelance or Commercial Income?
BFH Judgment of February 4, 2025 (Ref. VIII R 4/22): Organization can still be “freelance”
In group practices, it is not uncommon for individual partners to predominantly take on management, organizational, or administrative tasks. This quickly raises the concern from a tax perspective that the practice could be classified as commercial – resulting in a commercial tax liability (“co-adventuring” for partnerships).
The Federal Finance Court (BFH) clarified with the judgment of February 4, 2025 (Ref. VIII R 4/22): Even a practice partner who is primarily active in organizational roles can be a co-entrepreneur of a freelance partnership – and the practice’s income can remain entirely freelance.
1. Background: Freelance Activity and Commercial Tax
Doctors and dentists generally earn income from self-employment according to § 18 Abs. 1 Nr. 1 EStG. This is not subject to commercial tax.
It becomes problematic for partnerships (e.g., GbR, partnership companies) when the tax authorities believe that not all co-entrepreneurs fulfil the characteristics of a freelance activity or the company also engages in commercial activities. In such scenarios, depending on the situation, there is a risk of commercial structuring/co-adventuring and thus a commercial tax liability.
Especially in larger practices, internal division of labor is common: While some partners primarily provide treatment, others secure processes, staff, quality, contracts, and communications with authorities.
2. The Case: Senior Partner with Focus on Organization Instead of “Chairside Treatment”
The decided case concerned a partnership of dentists. According to the partnership agreement, a senior partner was mainly responsible for the commercial management and organization entrusted with the operation of the practice, among others:
- Personnel matters
- Process and practice organization
- Quality assurance
- Handling of contractual or administrative law topics
- Representation to authorities
The traditional patient treatment receded significantly. In the year in dispute, he conducted only five consultative consultations outside the practice rooms; a typical dental treatment on the treatment chair did not take place. His contribution to turnover was approximately 900 Euros..
3. View of the Tax Office and Financial Court: “Then it is commercial”
The Tax Office and in the lower court also the Financial Court of Rhineland-Palatinate held the view that the senior partner was no longer professionally self-employed due to his predominantly administrative activities. Consequence of this view: The income of the entire practice was commercial – with corresponding tax implications.
4. Decision of the BFH: Professional status despite administrative focus
The BFH overturned this view and decided in favor of the practice: The partnership generated income from self-employed work and no income from commercial business.
Core statements of the BFH
- For professional status, it is not alone it depends on whether a partner regularly treats patients.
- What is decisive is whether their activity is in apersonal, material, and functional connection with the practiced liberal profession.
- Organizational/administrative activities can also be part of the freelance partnership,if they are clearly integrated into the professional service delivery and ensure or secure it in the market.
- There areno rigid minimum extents of classical treatment activities that must be necessarily exceeded.
The BFH assessed the commercial and organizational management as a substantial contribution to ensuring that the dental services of the practice can be properly offered in the market. Thus, there is no “breach” with the professional image.
5. Legal Framework: § 18 EStG and Requirements for Partners
According to§ 18 Section 1 No. 1 EStG belonging to a catalog profession (e.g. dentist) alone is not automatically sufficient. In partnerships, it must rather bepositively established for each partner that they fulfill thecharacteristics of the liberal profession – especially theown active development of professional qualification..
However, the BFH clarifies: This active development can – depending on practice reality – also consist of aleading, contributing, organizational activity provided that it is:
- technically and functionally oriented towards the professional services and
- does not merely represent “non-practice related” commercial business activities.
6. Importance for Practice: More Flexibility, Lower Risk
The judgment is relevant for many group practices because it strengthens thedivision of labor organization: A partner can predominantly take over management tasks without automatically triggering trade tax liability for the entire partnership as a result.
However, it remains important: Whether income is freelance or commercial is always a case-by-case decision. Particularly mixed cases (e.g., additional commercial activities, involvement of external third parties, structural and contract design) should be carefully examined.
7. Note on Classification / Disclaimer (Abuse Warning)
This post serves general informational purposes and does not replace individual tax or legal advice in specific cases. A final assessment depends on the concrete corporate contractual design, the actual distribution of tasks, as well as other circumstances.
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