Trade tax liability under section 2(1) of the Trade Tax Act [Gewerbesteuergesetz–GewStG] is substantively linked to business activity under section 15(2) of the Income Tax Act [Einkommensteuergesetz–EStG]. However, there are differences in the timing between income tax and trade tax. Trade tax liability under section 2(1) of the Trade Tax Act only arises once all the conditions that constitute business activity have been met and the business activity has been started. Income tax, on the other hand, covers all business activities starting from the first preparatory step to open a business. With regard to notional business activities (section 15(3) of the Income Tax Act), which also give rise to a trade tax liability, the Federal Fiscal Court [Bundesfinanzhof–BFH] has again now ruled on this issue (file ref. IV R 5/24).

Digital business models and IT-enabled processes play a key role today in being successful in business. And the regulatory requirements are constantly increasing at the same time – particularly in data protection law, cyber security and in the use of artificial intelligence (AI).

In section 13c of the VAT Act [Umsatzsteuergesetz–UStG], VAT law sets out liability when claims are assigned, pledged or seized. When the assignment or pledge is made to a non-taxpayer or seized by a non-taxpayer, the administrative authorities expressly considered until now that there was no liability under section 13c. Non-taxpayers include bodies governed by public law if they do not carry on any economic operations as defined by section 2(3). But by applying section 2b, changes occur that affect bodies governed by public law. The Federal Ministry of Finance (BMF) has now commented on these changes in a new Circular.

For many years now, the trade tax burden has been based solely on the assessment basis of “trade income” (section 6 of the Trade Tax Act [Gewerbesteuergesetz–GewStG]). Although this is calculated from the base amount determined under the Income Tax Act and the Corporate Income Tax Act (section 7 sentence 1 of the Trade Tax Act), it is modified by the provisions of section 7 sentence 2 and following of the Trade Tax Act, sections 7a and 7b, and the add-backs and deductions under sections 8 and 9, particularly to implement the nature of the trade tax as a tax on assets. This also includes an add-back for the temporary transfer of rights, on which the fourth chamber of the Federal Fiscal Court [Bundesfinanzhof–BFH] has now ruled (file ref. IV R 26/23).

Following the judgement of the German Federal Fiscal Court [Bundesfinanzhof–BFH] of 27 March 2024, up to the end of 2025 flat-rate taxation at 25 per cent could be charged on benefits granted in connection with company events even if the event was not open to all employees. The Tax Amendment Act [Steueränderungsgesetz] 2025 has significantly tightened this option with effect from 1 January 2026. Flat‑rate taxation is now only permitted if the event is open to all the employees of a business or business unit – otherwise, substantial additional tax and social security costs may arise. What are the practical implications of this, and what should companies look out for in 2026? We’ll get you on course and explain the details.

The German federal government is planning to counter the current high costs of energy by introducing a relief premium. Employers will be able to make a voluntary pay-out to their employees of up to 1,000 euros tax- and social security-free by the end of 2026.

On paper, tax processes often appear clearly structured and well documented. However, operational reality frequently reveals a different picture: divergences in data flows, system logic, and interfaces are common in complex system landscapes.

Whoever has been importing cement, iron and steel, aluminium, fertilisers, electricity or hydrogen into the EU since 1 January 2026 and has not yet heard of CBAM (Carbon Border Adjust-ment Mechanism), may well stand at the EU border and rub their eyes in bewilderment. Since then the definitive phase of the CBAM Regulation (EU) 2023/956 has been in force, and what was a simple reporting obligation has turned into compulsory compliance duties that already start with a digital customs declaration (e.g. reporting the correct document codes and any individual registrations). By 30 September 2027 at the latest affected businesses must comply with their reporting duties and submit the certificates they previously had to buy. To do this, auditable processes and documentation have to be set up and governance models created.

Article 3 of the Seventh Regulation Amending Tax Regulations expands the Digital Payroll Interface (Digitale Lohnschnittstelle–DLS). In future, employers are not only to prepare standard payroll data digitally but also the data determined and used for this purpose used by upstream and ancillary systems. The tax authorities’ goal is understandable. In practice, however, the change will throw up considerable technical, organisational and data protection questions. This new version of section 4(2a) of the Income Tax Implementing Regulation (Lohnsteuer-Durchführungsverordnung–LStDV) applies to the data recorded in payroll accounts from 1 January 2027.

The Federal Ministry of Finance has published the draft of the new Tax Audit Regulations. These are to replace the current tax audit regulations and place a stronger focus on risk-based audits, faster proceedings and more duties on companies to cooperate.

Early retirement schemes are a widely used tool in personnel policy. But presentation in the accounts has always thrown up complex questions, particularly related to the recognition and measurement of provisions. In its judgement handed down on 5 February 2026 (IV R 11/24), the Federal Fiscal Court (Bundesfinanzhof) made significant clarifications, after the judgement from the lower court, Düsseldorf Fiscal Court, on 24 May 2024 (3 K 2044/18 F).

Exchanging shares under section 21 of the Reorganisation Tax Act [Umwandlungssteuergesetz–UmwStG] allows a group of companies to be rapidly restructured: shares conferring a controlling interest in one corporation are contributed to another corporation in exchange for the issuance of new shares. If an application is made, the exchange can be valued below fair market value, e.g., at the carrying amount. What’s more, under section 8b(2) of the Corporate Income Tax Act [Körperschaftsteuergesetz–KStG] there is no blocked period for groups in which all the entities are corporations.

In the case of partners in a partnership with limited liability, the transparent taxation under section 15(1) sentence 1 no. 2 of the Income Tax Act is restricted in loss situations. The limited partner may offset and deduct his losses directly only to the extent that he also bears them economically (section 15a(1) of the Income Tax Act [Einkommensteuergesetz–EStG]). Otherwise, pursuant to section 15a(2) of the Income Tax Act, the loss is merely assessed as offsettable [verrechenbar]. In that case, it reduces exclusively future profits from the interest in that specific limited partnership. The Federal Fiscal Court [Bundesfinanzhof–BFH] has now issued a detailed opinion on the special features of paragraph 1a of section 15a of the Income Tax Act, in particular regarding its constitutional assessment (file ref. IV R 27/23).

The only silent partnership in commercial law is that under sections 230 and following of the German Commercial Code [Handelsgesetzbuch–HGB]. This is an internal partnership without any assets of its own. Under income tax law, it essentially constitutes a “fully fledged” partnership if the silent partnership has been established in relation to a business operation or if the conditions for the notional business activities under section 15(3) of the Income Tax Act are met (Explanatory Notes to the Income Tax Act [Einkommensteuer-Hinweise–EStH] 15.8(6), “Atypical silent partnership”). Procedural law is also challenging, particularly in cases where the atypical silent partnership has been established in relation to a partnership. The first chamber of the Federal Fiscal Court [Bundesfinanzhof–BFH] has now ruled on this matter (file ref. I R 13/25, previously I R 4/13).

A “withdrawal” (Sect. 4(1) sent. 2 of the Income Tax Act) of business assets generally leads to the realization of hidden reserves. However, this requires the taxpayer to perform an act of withdrawal. Sect. 4(1) sent. 3 and 4 of the Income Tax Act creates a fictitious withdrawal if German taxation rights are excluded or limited. The Federal Tax Court (file numbers I R 41/22, I R 6/23) - in agreement with the tax authorities - considers the elements of the legal rule regarding the loss of the German right to tax to be fulfilled even if this impairment of the right to tax is not triggered by the taxpayer, but by a change in the legal framework (“passive loss of the German right to tax (“Entstrickung”)”).

Businesses may face serious risks in criminal tax law after the Federal Court of Justice (BGH) ruled on 10 December 2025 (1 StR 387/25) to change its previous case law. Incorrect preliminary VAT returns and a related incorrect annual return no longer count as a single offence. Instead, the offences stand next to each other and are to be evaluated under criminal law separately. This results in a considerable tightening of the legal consequences to taxpayers and all those involved in the preparation and submission of preliminary VAT returns and annual returns.