Splitting Income from Professional Services and Trade

When indirect partners of a private partnership, aka GbR, pursue a trade, can this partnership still be considered as "professional" and therefore only subject to income tax? The BGH published its judgment on February 25, 2009 (re VIII R 69/06 of October 28, 10, 2008).

This case involves the Ardoolia-GbR, a civil engineering firm. This partnership has several - legally independent - sister companies also civil engineering firms. These "location companies" function as corporate affiliates of the Partnership Company Padoo. Padoo held shares of all its affiliates. Among the partners of the Ardoolia-GbR was Emil, an economist competent in controlling and commercial administration as well as another tradesperson also commercially working in the partnership. Emil was not consulting for the partnership's clients as he did not meet the criterion for a "consulting economist".

While the Ardoolia-GbR was of the opinion that the income was exclusively obtained from the activity of professional services, the tax office disagreed.

The BFH upheld the office's opinion. A partnership only results in professional services, following the meaning of §18 I no. 1 EStG, when all members meet the criteria of a professional service. Each and every member must be pursuing such activity for which he is personally competent. When one partner does not meet this criterion, the partnership will be requalified. In such cases, the participation of a trade will contaminate ("abfärben") the partnership's status so causing the whole company to be receiving income from a trade (§15 I no. 2, §15 III no. 1 EStG). Emil was not obtaining income as a professional, therefore this company had to be requalified.

Although this is the rule for physical persons, it is just as true for partnerships. It is imaginable that partnerships are partners in other professional partnerships. Thus, it is necessary that no tradespersons are involved as a partner in any and all of the partnerships. Just holding shares of such company does not qualify a person or partnership of professionals. Therefore the partners of a controlling partnership can only obtain professional income when they personally perform their qualified services. Just holding shares in such will not qualify one or a partnership.


However, dangerous this could be, it will only have monetary consequences when you have a profit exceeding € 24,000. This is the tax exempt threshold for trade taxation.