Ina Ree­se Tax & Legal Prac­ti­ce – Flens­burg | Harrislee

When are two businesses regarded as one? The Federal Fiscal Court clarifies a trade tax issue

The Fede­ral Fis­cal Court (BFH) cla­ri­fies: When are two com­mer­cial enter­pri­ses trea­ted as a sin­gle enti­ty for trade tax pur­po­ses? The jud­ge­ment X R 8/23 sets out key criteria. 
When are two businesses regarded as one? The Federal Fiscal Court clarifies a trade tax issue

When are two businesses regarded as one? The Federal Fiscal Court clarifies a trade tax issue

Anyo­ne who, as a sole trader, car­ri­es out seve­ral com­mer­cial acti­vi­ties will soo­ner or later ask them­sel­ves: Are the­se taxed sepa­ra­te­ly or coll­ec­tively? In a recent jud­ge­ment, the Fede­ral Fis­cal Court (BFH) has cla­ri­fied the cri­te­ria accor­ding to which trade tax aut­ho­ri­ties deter­mi­ne whe­ther the­re is one or more busi­ness ope­ra­ti­ons, ther­eby over­tur­ning the pre­vious fis­cal court jud­ge­ment. The case refe­rence is X R 8/23; the jud­ge­ment was han­ded down on 28 Janu­ary 2026 and published on 16 July 2026.

The case: Two recycling businesses under one roof

An entre­pre­neur ran a who­le­sa­le busi­ness deal­ing in second-hand mate­ri­als and was­te mate­ri­als. On the same pre­mi­ses, his mother ran a scrap metal busi­ness. Fol­lo­wing her death, he also inhe­ri­ted this busi­ness. He main­tai­ned sepa­ra­te accounts and sepa­ra­te bank accounts, used dif­fe­rent com­pa­ny signs and sub­mit­ted a sepa­ra­te trade tax return for each business.

The tax office took a dif­fe­rent view. It regard­ed both acti­vi­ties as forming part of a sin­gle busi­ness and the­r­e­fo­re issued only one joint trade tax assess­ment noti­ce. The Finan­ce Court upheld this assess­ment. The Fede­ral Fis­cal Court, howe­ver, refer­red the case back becau­se the facts of the case were insuf­fi­ci­ent to reach a final judgement.

The legal question: Is it one business or two?

Under Sec­tion 2(1) of the Trade Tax Act, trade tax is levied on the indi­vi­du­al busi­ness. Whe­ther a per­son ope­ra­tes one or more busi­nesses depends on two main factors:

  • Simi­la­ri­ty of tasks: Whe­re acti­vi­ties are of a simi­lar natu­re, case law pre­su­mes that they form part of a sin­gle busi­ness. Howe­ver, this pre­sump­ti­on may be rebut­ted if the­re is no objec­ti­ve con­nec­tion bet­ween them.
  • Diver­se acti­vi­ties: In this case, the oppo­si­te appli­es. The fact that the busi­nesses are dis­si­mi­lar gene­ral­ly sug­gests that the­re are seve­ral sepa­ra­te busi­nesses. A sin­gle busi­ness is nevert­hel­ess pos­si­ble if the­re is a suf­fi­ci­ent eco­no­mic, orga­ni­sa­tio­nal and finan­cial link bet­ween them.

In this regard, the Fede­ral Fis­cal Court (BFH) empha­si­s­es a tie­red approach: the more diver­se the acti­vi­ties, the stron­ger the fac­tu­al con­nec­tion must be in order for the busi­ness to still be regard­ed as a sin­gle entity.

What counts as a connection

An eco­no­mic link exists whe­re both acti­vi­ties sup­port and com­ple­ment one ano­ther. An orga­ni­sa­tio­nal link may ari­se from shared pre­mi­ses, shared staff or joint pro­cu­re­ment. Shared accounts, a uni­fied method of deter­mi­ning pro­fit, or the off­set­ting of los­ses bet­ween the divi­si­ons are indi­ca­ti­ons of a finan­cial link.

Special circumstances in the event of inheritance

The Fede­ral Fis­cal Court (BFH) makes it clear that even a busi­ness acqui­red by inhe­ri­tance does not auto­ma­ti­cal­ly result in a mer­ger. The entrepreneur’s sub­jec­ti­ve inten­ti­on to keep the busi­nesses sepa­ra­te is not, on its own, suf­fi­ci­ent. The decisi­ve fac­tor is whe­ther the sepa­ra­ti­on was objec­tively reco­g­nisable and actual­ly imple­men­ted. At the same time, howe­ver, it must not be over­loo­ked that two inde­pen­dent busi­nesses exis­ted pri­or to the mother’s death. If the­re is no dis­cer­ni­ble chan­ge fol­lo­wing the trans­fer, this may indi­ca­te that two busi­nesses con­ti­nue to exist.

What does this mean for business owners?

Anyo­ne who runs seve­ral busi­nesses and wis­hes to keep them sepa­ra­te for tax pur­po­ses should not limit this sepa­ra­ti­on to mere paper­work. Kee­ping sepa­ra­te accounts is an important indi­ca­tor, but it is not decisi­ve on its own. What mat­ters is how things are actual­ly orga­nis­ed in day-to-day ope­ra­ti­ons: who makes the purcha­ses, who are the cus­to­mers, and are the­re shared staff or busi­ness assets? It must be pos­si­ble to pro­vi­de spe­ci­fic ans­wers to all the­se ques­ti­ons. If in doubt, it is advi­sa­ble to seek tax advice befo­re the tax office deci­des to tre­at the busi­nesses as a sin­gle entity.

This post and the accom­pany­ing image were crea­ted with the help of AI and have been edi­to­ri­al­ly reviewed.

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