In its decision of 23 March 2022 – III R 35/20, the Federal Court of Finance (BFH) dealt with a similar case: The main shareholder and managing director of a property GmbH had his sole domicile in Luxembourg. The company did have a German legal form. Nonetheless, the BFH had to examine whether a German permanent establishment existed. The power of attorney of the property management company, which was resident of Germany, was so comprehensive that a transfer of the actual management to this company could not be ruled out.

However, the findings of the fiscal court did not permit a decision by the BFH. For this reason, the BFH referred the case back to the fiscal court. It must now consider whether decisions of relative importance arising in the day-to-day business of the property GmbH were made by the property management company or its managing director and who had the relevant decision-making authority. Based on the comments in the BFH decision, a management permanent establishment may have existed in the premises of the German contractor.

The decision shows that when hiring a management or services company, care must be taken to ensure that the underlying contracts are appropriately drafted and implemented. If the contracted German company effectively represents the property company to banks and the tax office, independently concludes and terminates rental contracts, and makes decisions regarding work and service contracts, there is much to suggest the existence of a German management permanent establishment and, consequently, liability for trade tax in Germany.


Best regards

Prof. Dr. René Schäfer