Concept and Significance of Operating Equipment
In German law, operating equipment (‘Betriebsvorrichtungen’) is a significant term, particularly relevant in various legal areas such as tax law, income tax law, trade law, and public law. The definition and distinction of operating equipment have far-reaching legal, tax-related, and valuation-related consequences, especially in connection with the valuation of real property and business premises. The legal examination of the term is essential for the correct application of relevant regulations and ordinances.
Distinction: Operating Equipment and Real Property
Statutory Foundations
In German law, the term “Betriebsvorrichtungen” (operating equipment) is primarily referenced in Section 68 (2) sentence 1 of the Valuation Act (BewG) and Section 2 (1) sentence 2 of the Real Property Tax Implementation Ordinance (GrStDV). These stipulate that operating equipment does not constitute elements of real property in the sense of property valuation law and must be treated separately.
Definition
According to the statutory definition (Section 68 (2) BewG), operating equipment comprises machines, other devices, and installations that belong to a business facility, serve the business directly, and do not constitute structural components in the classic sense of real property law, especially under Section 94 (1) of the German Civil Code (BGB) (“essential components of real property”).
Criteria for Differentiation
- Intended Purpose: Operating equipment is, by design, oriented toward a specific technical business function and serves the direct exercise of the business or production operations involved.
- Construction and Building Components: Unlike buildings, structural installations, or other immovable structures, operating equipment is movable or easily separable.
- Integration into the Building: Although they are often firmly connected to the building, their technical allocation to the business remains decisive. They are not intended to serve the building as such, but merely to enable business operations.
Operating Equipment in Tax Law
Valuation for Real Property Tax and Inheritance Tax Purposes
Under Section 68 (2) BewG and the GrStDV, operating equipment is not considered part of real estate assets. Consequently, it is not subject to real property tax and is not included in the determination of the assessed values of real property. Likewise, operating equipment is not part of the tax base for inheritance or gift tax, provided it is not transferred together with a property.
Treatment under VAT Law
There is no separate definition of operating equipment in the Value Added Tax Act, but the distinction, particularly between the supply of goods and other services in connection with immovable assets, is significant—for example, when delivering a developed property, where operating equipment may be treated as a separate asset.
Trade Tax Aspects
Operating equipment is considered depreciable movable fixed assets. In the context of trade tax additions, they are treated accordingly. In this respect, their function within business assets is particularly significant.
Operating Equipment in Building and Public Law
Classification under Building Law
Under building regulations, operating equipment is generally not regarded as an independent structural installation if its sole purpose is the technical operation or production within the business location. As a result, specific building permits are often not required for operating equipment; however, in individual cases, their interaction with building regulations may be relevant, particularly if a firm connection with buildings affects public safety or protection objectives.
Emission Control and Plant Law
Within the scope of the Federal Emission Control Act (BImSchG) and related protective laws, operating equipment receives special consideration because it can be seen as part of an overall facility and, in this context, expands the overall technical installation concept. This creates obligations and requirements regarding approval, operation, and maintenance.
Valuation and Accounting of Operating Equipment
Accounting Treatment under the Commercial Code (HGB)
According to commercial law principles (Section 247 HGB), operating equipment must be recorded as separate movable assets in fixed assets in the balance sheet. They are subject to both tax and accounting depreciation rules and are depreciated in accordance with the relevant depreciation tables.
Valuation in Real Estate Transactions
In real estate transactions, and especially during valuation for assessment purposes, operating equipment is excluded from the building’s value and separately appraised. This can play a decisive role both in the context of purchase agreements and in expert opinions.
Typical Examples of Operating Equipment and Delineation Difficulties
Classic examples of operating equipment include manufacturing machines, conveyor systems, elevators, air conditioning systems, steam, gas and water pipelines, provided they predominantly and directly serve the business operation.
Operating equipment must be distinguished, for example, from fittings that serve the building itself or its general use, such as central heating systems or sanitary installations, which are regularly considered part of the building.
Case Law and Administrative Practice
Key Decisions
The case law of the tax courts and the Federal Fiscal Court (BFH) has continuously developed the precise definition and distinction of operating equipment. In particular, the BFH case law regularly emphasizes a functional approach—that is, the question of whether the asset in question is directly intended for the business process or only indirectly serves the business.
Administrative Instructions
The tax authorities concretely implement statutory requirements and case law through numerous decrees, administrative orders, and circulars that provide practical guidance on criteria and case groups.
Significance for Practice
The correct classification of operating equipment has a significant impact on taxation, accounting treatment, and valuation of real property. Incorrect classifications can lead to tax disadvantages or unwanted liability risks. In the context of real estate and business transfers, precise review and legally secure documentation are essential.
Summary
Operating equipment constitutes an independent legal concept with considerable impact on matters relating to taxation, accounting, and valuation law. Its legal treatment is shaped by numerous regulations and extensive case law and requires careful delineation from building components and other structural installations. Sound knowledge of the relevant criteria is therefore indispensable for legally compliant handling of operating equipment in practice.
Frequently Asked Questions
What legal requirements must be met for something to qualify as operating equipment?
An operating equipment in the legal sense is defined according to Section 68 (2) BewG (Valuation Act). The decisive point for qualifying as operating equipment is that the equipment is intended to serve the business both directly and on a permanent basis, fulfilling the business’s economic purpose. Furthermore, it must stand in such a spatial-functional relationship to the business that it is not part of the real property but is recorded as a separate piece of operating equipment. The case law of the Federal Fiscal Court (including BFH, judgment of 23.01.2008, II R 27/05) specifies that, unlike building elements, operating equipment does not serve as a location for people or storage for items, but is directly oriented toward performing technical work or production processes. For purposes of real property tax and real estate transfer tax, operating equipment is not a property-related asset, but rather business assets, which is why it may be excluded from the assessment of value.
Are machines that are firmly attached to a building also considered operating equipment?
Whether a machine that is firmly attached to a building is regarded as operating equipment depends on its intended use and its technical function in relation to the entire building. Legally, the decisive factor is whether the machine serves exclusively as part of the production process or is instead an integral component of the structure, ensuring its operational capacity. According to the tax authorities and case law (see BFH judgment of 13.03.2007, II R 25/04), machines serving the production process remain operating equipment even when, by virtue of their fixed attachment to the building, they become “essential components” as defined by Section 94 BGB. The precondition is that the machines do not serve structural use (i.e., as a place for people or storage of goods), but serve the business operation. Heating, ventilation, and sanitary installations are typically not operating equipment, but rather building components.
How are operating equipment items treated under real property tax or real estate transfer tax?
Operating equipment holds a special status in taxation. For real property tax purposes, it is disregarded in the assessment of unit values in accordance with Section 68 (2) sentence 1 BewG and thus not subject to real property tax. Accordingly, it is not considered part of real property but is attributed to business assets. The same applies to real estate transfer tax: under Section 2 (1) sentence 2 GrEStG, only real property, including buildings, is subject to the tax, not operating equipment. Therefore, when selling a business property, it is imperative to carefully distinguish between assets belonging to the real property (especially buildings) and operating equipment in order to avoid double taxation.
How is the distinction between operating equipment and building components made in legal terms?
The distinction between operating equipment and building components can be difficult in individual cases but is essential for legal consequences such as taxation or depreciation. The Federal Fiscal Court has established various criteria for distinction, such as whether the equipment in question primarily serves the building’s function or exclusively serves production or business services. For example, elevators, heating systems, doors, and windows are regularly considered building components because they serve the building’s ordinary use, while manufacturing lines, silos, or cranes are operating equipment if they are directly used in the production or processing of products. An important factor is also whether the exchange or removal is possible without significant impairment of the building’s structural integrity and whether the equipment is strictly required for business operations.
What is the significance of the term ‘operating equipment’ in tax law apart from real property tax?
Apart from real property tax, the term ‘operating equipment’ plays a key role especially for depreciation and value-added tax. Operating equipment is classified as independent movable assets and can be depreciated separately (Section 7 EStG). It is not subject to building depreciation, but is instead subject to the more rapid depreciation for movable assets (generally between 7 and 15 years). For VAT purposes, operating equipment is not considered part of real property, which is relevant for determining the applicable tax rate and input tax deduction entitlement. In income tax law, operating equipment is also allocated to business assets and not counted as part of real property.
Are there exceptions where operating equipment is attributable to real property?
In certain exceptional circumstances, it may be appropriate in legal terms to consider operating equipment as part of the real property, e.g., when it is inseparably joined with the building and essential for its operational capability. This is particularly the case when the building’s construction and the installation of the machine are so closely coordinated that the building cannot fulfill its purpose without the equipment, and the operating equipment cannot be removed without destroying the building. Case law refers here to the so-called functional connection, which must be assessed on a case-by-case basis. However, this exception is narrowly construed, and the separate tax treatment of operating equipment usually takes precedence.
How do legal amendments or changes in case law affect the treatment of operating equipment?
Changes in case law, for instance by the BFH or ECJ, can affect the classification and tax treatment of operating equipment. In particular, new decisions regarding the distinction between building components and operating equipment must be taken into account in practice and can have retroactive effects on tax proceedings or existing contracts. Subsequent statutory changes, such as those introduced with the property tax reform, may also lead to a different assessment and taxation, which is why it is necessary to regularly check whether particular equipment currently qualifies as operating equipment for tax purposes. Transitional provisions in new laws should be especially considered.
