The treatment of wages under German double tax treaties essentially follows the regulations of Art. 15 of the OECD Model Convention 2025. Only the state of residence is entitled to tax such income, “unless the employment is performed in the other contracting state.” The regulations in paragraph 2 of Art. 15 then establish exceptions to the source state’s competing right to tax. In this context, the Federal Tax Court has now once again had to rule on a treaty override (Sect. 50d(9) of the Income Tax Act). In cases of substantive errors, however, it can (unfortunately) also “change course” beforehand.

The Inheritance and Gift Tax Act is currently the subject of controversy due to political debates as well as pending decisions by the Federal Constitutional Court. The decision preannounced on the Federal Constitutional Court’s website in case 1 BvR 804/22 specifically concerns the new inheritance tax law, which had been implemented following the Federal Constitutional Court’s 2014 decision (Federal Constitutional Court, judgment dated Dec. 17, 2014, file number 1 BvL 21/12). The Federal Tax Court has now ruled in favor of the tax authorities in a judgment addressing temporal application issues arising from the transition to the new law (judgment of Nov. 20, 2025, file number II R 7/23).

The Federal Constitutional Court publishes an annual list of “planned decisions for the year 2026.” Among the numerous cases are six decisions related to tax law. Particular focus is placed on the constitutional assessment of Sect. 8c of the Corporate Income Tax Act in the context of the acquisition of more than 50 percent of the shares in a corporation, as well as a landmark decision on the inheritance tax benefits under Sect. 13a and 13b of the Inheritance and Gift Tax Act.

The question of how to determine “profit” is relevant in several areas of income tax law. In ad-dition to the assessment basis “profit” in Sect. 2(2) sent. 1 no. 1 of the Income Tax Act, such questions arise particularly in Sect. 4(4a) of the Income Tax Act, Sect. 34a of the Income Tax Act, but also with regard to the investment deduction (“Investitionsabzugsbetrag”) of Sect. 7g(1–4), 7 of the Income Tax Act. In this regard, the Federal Tax Court has now ruled that off-balance-sheet adjustments must also be taken into account when determining this “profit threshold”.

The corporate income tax and income tax are both subject to the “solidarity surcharge”. In addition, church members face an additional income tax burden in the form of the church tax, which in turn reduces the income tax liability as a fully deductible special expense (“Sonderausgabe”; Sect. 10(1) no. 4 of the Income Tax Act). These taxes also present procedural challenges, as a new Federal Tax Court (“Bundesfinanzhof”) ruling (file number X R 28/22) demonstrates.

The business split-up (“Betriebsaufspaltung”) is not regulated by German tax law, but is based on case law. It originally arose with a view to trade tax and its possible erosion when a domi-nant shareholder leases assets to a corporation. In the meantime, it has detached itself from this "context" according to the case law of the Federal Tax Court (“Bundesfinanzhof”) and now has a life of its own that is not enshrined in law. Nevertheless, it continues to have a noticeable impact on trade tax, as a new ruling by the Federal Tax Court (file number IV B 31/25) shows.

Sect. 230 et seqq. of the German Commercial Code (“Handelsgesetzbuch”) specify a single "silent partnership". The silent partner participates "in the commercial business operated by another person with a capital contribution" (Sect. 230(1) of the German Commercial Code). From a tax point of view, on the other hand, the details of the articles of association are of utmost importance. Anyone who "builds" a typical silent partnership gets an almost contractual relationship. Anyone who "builds" an atypical silent partnership gets an almost complete income tax co-entrepreneurship (“Mitunternehmerschaft”) with (almost) all positive and negative consequences. The Federal Fiscal Court has now ruled again on the distinction between the two versions of the silent partnership (file number IV R 24/23).

The profit and loss transfer agreement is a "German peculiarity" for establishing a fiscal unity (“Organschaft”) for income tax purposes. It must be concluded for at least five years and implemented throughout its entire term. Unlike other criteria, such as financial integration, there can be no "interruption" in its implementation. If it is not actually implemented, the fiscal unity cannot be established and must be treated as a "failed fiscal unity." The Federal Tax Court has now specified the details of the actual implementation in a new ruling with great practical relevance.

Phase-aligned recognition of a minority shareholder’s compensation claim from a tax group

Virtual participation programs have long been highly popular, particularly in the venture capital and technology sectors, where limited financial resources meet strong competition for highly skilled talent. Against this background, companies frequently implement comprehensive employee participation programs to retain key personnel or to attract them in the first place. The Federal Labour Court’s (Bundesarbeitsgericht – BAG) revised legal interpretation, reflected in its decision of 19 March 2025, makes it necessary to fundamentally rethink the set-up of virtual participation programs. This article outlines the implications of the decision and highlights practical consequences for employers.

In a circular dated December 29, 2025, the Federal Ministry of Finance announced changes to fields in, among other things, the • 2026 advance VAT return • 2026 yearly VAT return • special advance payment of VAT for 2026 • income tax return 2025.

In its judgement of 30 July 2025 (file ref. X R 7/23), the Federal Fiscal Court (BFH) held that the filing deadline for the 2019 tax return that was extended by statute does not have the same effect as an official deadline extension as defined by section 109 of the Fiscal Code (AO). Consequently, if it is filed late, it is compulsory to charge a late-filing penalty under sec-tion 152(2) AO. The Federal Fiscal Court held that the exception under section 152(2) no. 1 AO, which would have allowed a discretionary decision under section 152(1) AO, was ruled out because the conditions were not met. The claimant was not able to derive the possibility of a discretionary decision from the FAQs on “Corona” (taxes), the legal character of which the Federal Fiscal Court also commented on in its judgement.

A change is pending to the VAT treatment of public services that constantly run at a loss. The new Federal Ministry of Finance Circular of 20 January 2026 makes the requirements much stricter on the nature of consideration, business activity and thus also the deductibility of input VAT for operations that constantly run at a loss. In future, public services will have to meet stricter checks, particularly regarding the cost/income ratio and the link to subsidies. The new legal situation implements the decisions of the European Court of Justice (ECJ) and the Federal Tax Court (Bundesfinanzhof – BFH). It compels legal persons under public law (municipalities, cities, local government), but also other private operators outside the public sector, to examine and reorientate the interests they hold under private law (e.g. municipal utilities [Stadtwerke]) in private legal forms, their structures and financing models.

The legislature has prescribed correspondence principles for both hidden profit distributions and hidden contributions. Taxation at the company level thus has an impact on tax exemptions for shareholders (in the case of hidden profit distributions, Sect. 8b(1) sent. 2 ff. of the Corporate Income Tax Act). Conversely, the treatment at the shareholder level has an impact on the company's income (in the case of hidden contributions, Sect. 8(3) sent. 4 ff. of the Corporate Income Tax Act). The Federal Fiscal Court has now published a surprising ruling.

Reorganizations under the German Reorg Tax Act (“Umwandlungssteuergesetz”) are often favored for income tax purposes via the opportunity to apply book values upon request. However, a reorg also entails other legal consequences. In particular, the "retroactive effect" provisions of the Reorg Tax Act implement a different allocation of income in the retroactive period (“Rückwirkungszeitraum”, Sect. 2, 20(5, 6) Reorg Tax Act). In addition, provisions such as Sect. 4(2) of the Reorg Tax Act prescribe a special legal succession. The extent of this legal succession is controversial, particularly in the case of share for share exchanges (Sect. 21 of the Reorg Tax Act).

In its judgement on 9 September 2025 (file ref. VI R 7/23), the Federal Fiscal Court (BFH) answered an important question on company car taxation: can costs for a parking space or garage paid by the employee reduce the non-monetary benefit from the private use of a company car?