Concept and significance of the economic unit
The economic unit is a central concept in business and tax law, permeating various areas of law. In a specific context, it refers to the aggregation of several items, persons, or legal facts into an economic whole that is treated as a single object for certain legal regulatory purposes. The economic unit is particularly significant in valuation law, tax law, as well as in company and real estate law.
Legal foundations and definitions
Valuation law and property tax
In valuation law, the term economic unit is primarily used in connection with the unitary valuation of real estate and thus the determination of property tax. The legal basis can be found in the Valuation Act (BewG), in particular in § 2 BewG. According to this, for the purpose of determining the unit value, properties and property-like rights are to be combined into economic units. The economic unit thus serves as a basis for valuation.
Types of economic units in valuation law
The following types of economic units are distinguished in particular:
- Real properties (developed or undeveloped)
- Agricultural and forestry operations
- Business properties of commercial enterprises
- Residential property or partial ownership under the Condominium Act (WEG)
Each of these units is treated as a separate valuation object, even if multiple rights or properties are interconnected or if there are several owners.
Main characteristics of the economic unit
The essential legal criteria for the existence of an economic unit within the meaning of the BewG are:
- Totality of economic purposes: The assembled items or rights serve a specific economic purpose and must be considered in their economic relation.
- Factual connection: The items must be objectively connected to each other, for example, several properties used by one owner for business operations.
- Legal independence: The economic unit must be distinguished from the legal unit; for example, an economic unit may comprise several legally independent properties.
The decisive factor is always the objective economic connection. Actual use and intended purpose are decisive.
Economic unit in tax law
Significance for different types of taxes
The concept of the economic unit is also found in other types of taxes, such as:
- Real estate transfer tax: The transfer of an economic unit can trigger taxable facts.
- Inheritance and gift tax: In valuing real estate and agricultural operations, the economic unit serves as a valuation standard.
Implications for real estate transfer tax
In real estate transfer tax law, the economic unit constitutes the object of the acquisition transaction. When acquiring several properties that are objectively connected (e.g., a building complex consisting of several parcels), these are treated as an economic unit. The acquirer therefore becomes liable for tax for the acquisition of the entire economic unit. The actual circumstances at the time of the legal transaction are decisive.
Economic unit and income tax law
In income tax law, for instance regarding trade tax, the economic unit can be used to determine business assets or economic activities. In particular, by reference to the German Commercial Code (HGB) and the General Administrative Guideline to the BewG, the economic approach is a principle when aggregating economic activities.
Economic unit in company and real estate law
Corporate law aspects
In certain constellations, such as partnerships, company assets are considered as an economic unit as opposed to partners’ private assets. This affects liability, taxation, and succession.
Real estate and condominium law
In real estate law, the economic unit must always be analyzed in connection with ownership structures, use, and administration. For example, division under the Condominium Act (WEG) may split one economic unit into several legal units, but these can still be treated as a single economic unit for tax purposes in specific cases if use and economic intent remain.
Distinction: Economic unit vs. legal unit
Economic and legal units often diverge. A property may be legally divided but, from an economic perspective, still constitute a unit, for example, through joint management or shared infrastructure.
Administrative and judicial practice
Administrative interpretation
The tax authorities have issued guidelines for interpreting the term economic unit, which should be particularly applied when valuing and taxing real property.
Case law
The courts, particularly the Federal Fiscal Court (BFH), have developed criteria for the formation and distinction of economic units in numerous decisions. The objective connection is decisive; the subjective ideas of the parties are generally of secondary importance.
Practical significance and applications
Property purchase and sale
In transactions involving multiple properties or business facilities, the economic unit is of significant relevance for tax treatment.
Business transfer and restructurings
In the case of restructurings, business partitions, or business transfers, identifying the economic unit is fundamental for tax and valuation treatment.
Declaration of assessment and valuation procedures
When filing assessment declarations for property tax or other tax purposes, the correct designation and delineation of the economic unit is required.
Summary and significance in legal practice
The economic unit is a decisive concept of German valuation and tax law. It serves the practical aggregation of several economically connected objects or rights into a single entity for valuation and legal purposes, which forms the basis for taxation, valuation, and numerous legal consequences. Determining, delineating, and handling the economic unit requires careful legal analysis, taking into account statutory provisions, administrative practice, and current case law.
Further reading
- Valuation Act (BewG)
- Real Estate Transfer Tax Act (GrEStG)
- Federal Fiscal Court, case law on the economic unit
- Commentary literature on valuation law and tax law
Frequently Asked Questions
When is an economic unit deemed to exist within the meaning of EU competition law?
In EU competition law, the economic unit is mainly used in connection with the attribution of antitrust violations. An economic unit exists if several legally independent companies act in the market as a single organizational entity because they are under common management of a parent company or their business policy is decisively determined by a central entity. The decisive factor is whether the subsidiary can actually act independently regarding its business policy and strategic decisions, or essentially follows instructions of the parent company. An economic unit is particularly assumed when the parent company can exert decisive influence over the subsidiary. The economic unit is considered to be a single competitor, so violations by a subsidiary can also be attributed to the parent company. In individual cases, ownership structure, degree of control, and economic interdependence must be considered, as clarified by the case law of the European Court of Justice.
What is the significance of the economic unit in German antitrust law?
German antitrust law, especially the Act against Restraints of Competition (GWB), closely aligns its concept of the economic unit with the European model. Here, the economic unit is particularly relevant in the contexts of fine liability and corporate mergers. Thus, an antitrust violation can be attributed not only to the company directly involved but also to the entire economic unit of which it is a part. When determining fines and assessing whether a merger under the GWB exists, the economic unit plays a central role. The decisive criterion is who ultimately controls the company, with German law also considering unified management and economic control as main criteria.
In which situations is the economic unit relevant under labor law?
In labor law, the economic unit plays a role especially in business transfers under § 613a of the German Civil Code (BGB). In a business transfer, the decisive factor is whether an organizational unit—that is, a business or part thereof—retains its identity and thus continues to exist as an economic unit. This involves examining whether the transferred assets, employees, and organizational structure are essentially preserved. Similarly, when establishing the joint operation of several companies or in outsourcing matters, the focus is on whether an economic unit continues to exist under labor law so that rights and obligations from employment relationships are correctly assigned.
How are actions within an economic unit attributed under liability law?
In liability law, particularly in company and antitrust law, the attribution of actions within an economic unit is based on the principle that a group or holding company can be held liable for actions of its subsidiaries if the latter are to be regarded as non-autonomous within the economic unit. In particular, in the case of competition law infringements or damages resulting from unlawful acts, the parent company can be held liable, by analogy to the economic unit, for the violations committed by its subsidiaries. Attribution always depends on actual control and not merely on majority shareholding.
What criteria apply for distinguishing economic units in group structures?
The distinction of economic units in group structures is based on various legal and factual criteria. Central is the question of unified management, i.e., to what extent strategic decisions are made centrally and implemented operationally. Other criteria are financial and organizational interdependence, personnel links at the management level, and the joint use of resources and infrastructure. The autonomous economic operation of a subsidiary can counter the presumption of an economic unit, provided actual autonomy exists. The courts focus on the degree of instructive authority and the factual integration into the group.
How is the term “economic unit” legally assessed in merger control?
In merger control, the economic unit plays a central role when assessing whether a concentration exists and whether this leads to or strengthens a dominant market position. Legally, the assessment is whether the participating companies form an economic unit, which is the case when they are under unified control. This assessment is necessary to correctly reflect actual market conditions, because only economically independent companies are considered separate market participants. Merger control excludes economic units already within the sphere of influence of a group, provided no new power positions arise. Here, silent partnerships, contractual cooperations, and other forms of influence are also considered.
What are the legal consequences for parties resulting from the assumption of an economic unit?
The legal consequences of the assumption of an economic unit range from joint and several fine liability to broad attribution of antitrust violations and simplified legal enforcement against all parts of the economic unit. During official investigations and sanctions, the competent competition authority may take measures against any company within the economic unit. The economic unit is used as a legal fiction to transparently and effectively reflect the actual economic and legal circumstances of corporate groups, both in the interest of market oversight and in protecting consumers and competition.
