The term "sovereign" is used to distinguish between public law and private law activities.

According to the previous case law of the Federal Fiscal Court, it is necessary for an activity to be assigned to the sovereign sphere that this activity is proprietary and reserved for the public corporation (for more information, see also the distinction between sovereign and commercial).

Applying these criteria of ownership and reservation, the fulfillment of tasks no longer takes place within the framework of a sovereign enterprise if private individuals also carry out corresponding activities and the university thereby - even if only unintentionally - enters into competition with the private sector .

The public administration has a social monopoly for sovereign activities.

The sovereign business of a university primarily includes activities in the field of research and teaching, insofar as the costs for these are primarily financed by budget funds.

Consequently, it is characteristic of a sovereign research activity that the research results directly benefit the general public, whereby in this respect it can be a professionally interested part of the general public. In a negative distinction, there must be no activity that grants a private company the right to the exclusive exploitation of research results. In this case, the university leaves the area of sovereign activity because it enters into a competitive relationship with private companies that are also active in the field of research and development.

The distinction between sovereign and commercial activities based on the criteria of ownership and the reservation of the activity for the legal entity under public law has been largely superseded by the development of supreme court rulings. According to recent case law, the distinction between sovereign activities that are not relevant under tax law and economic activities that are relevant under tax law is made according to whether the legal entity under public law carries out activities in accordance with a special regulation under public law. The decisive factor is whether the public corporation carries out an activity "within the framework of a legal regulation specifically applicable to it and not under the same legal provisions as private economic operators". If the activity of a legal regulation that applies specifically to the legal entity under public law is affirmed, this constitutes a sovereign activity in the sense of tax law. Remuneration attributable to such an activity is then not taxable.

This generally goes hand in hand with the fact that sovereign activities do not constitute an exchange of services under tax law, i.e. it is not a "service for consideration" relationship. In the case of commercial activities, on the other hand, a corresponding fee is paid for a specific expected service provided by the university (usually as part of a contract). A classic example of paid service exchange relationships is contract research with "third-party funds" from the private sector. It serves the private commercial interests of the companies (significant: reservation of rights of use and exploitation).
In contrast, grants from public and institutional donors are - subject to precise contractual examination - fundamentally of a sovereign nature because the funds generally initiate research "for the sake of research" and ultimately serve the general public