Abfärbewirkung of commercial investment income of a partnership.

December 5, 2019

If, in addition to non-commercial income, a partnership also generates original commercial income or income from the participation in another commercial partnership, the so-called “Abfärbewirkung” applies. This means that all of its income is deemed to be from commercial operations.

In the case decided by the Federal Fiscal Court, a KG (limited partnership) mainly generated income from renting and leasing as well as from capital assets. In addition, it also generated minor commercial income from participations in other partnerships. In the case where a partnership only carries out minor original commercial activities, there is no tax deduction. The KG was of the opinion that this should also apply to minor commercial investment income.

The Federal Fiscal Court disagreed. It ruled that commercial investment income, regardless of its size, always leads to the reclassification of non-commercial income. With regard to trade tax, however, the effect of the reclassification due to commercial investment income is only constitutional if the commercial income resulting from the reclassification is not subject to trade tax. This is the only way to ensure that partnerships are not placed in a worse position than sole proprietorships.

15 para. 3 no. 1 alt. 1 und 2 EStG BFH, Urt. v. 06.06.2019, IV R 30/16, BFH/NV 2019, p. 994