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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.

Berlin-Brandenburg Tax Court clarifies that US withholding tax can be credited against trade tax

Employment and social security law risks often arise not from isolated errors, but from unclear responsibilities, evolved processes and a lack of coordination between HR, payroll, specialist departments and external service providers. The consequences range from significant back payments to personal liability risks for managing directors and other responsible corporate bodies.

The sale of a participation in a partnership triggers consequences under trade tax law that “require some getting used to”. If a natural person holding a direct interest sells his participation, no trade tax is due at all, except in the cases specified in Sect. 18(3) of the Reorg Tax Act (“Umwandlungssteuergesetz”). If, on the other hand, a corporation sells its participation, trade tax is due in every case (Sect. 7 sent. 2 no. 2 of the Trade Tax Act), which the partnership whose participation was sold owes itself. The Federal Tax Court had to decide (file number III R 38/22) whether trade tax is due for the selling corporation if the sold partnership is not yet subject to trade tax under Sect. 2 of the Trade Tax Act.

Where do you really stand? Our health checks uncover risks in tax and compliance – compact, practical, to the point.

Severance payments are made for the loss of a job. Case law from the Federal Tax Court (“Bundesfinanzhof”) has clarified that such compensation constitutes income from employment within the meaning of Sect. 19 of the German Income Tax Act (e.g. Federal Tax Court, Judgement dated August 1, 2024, file number VI R 52/20, margin no. 31). But how is this addressed in a cross-border context? Do German double tax treaties permit such inclusion if the taxpayer is resident in the other contracting state? The Federal Tax Court has now ruled on this matter again (file number VI R 3/24).

Part 2 of our four-part Health Check series: A Wage Tax Health Check helps companies identify typical tax risks at an early stage and review internal processes. Errors frequently arise in areas such as entertainment expenses, company events, gifts, or the private use of company cars and e-bikes – often due to unclear responsibilities or missing data flows between departments. A structured Health Check creates transparency, identifies optimization potential and better prepares companies for wage tax audits.

International trade flows are becoming increasingly complex due to new regulations such as CBAM, preferential trade agreements and additional compliance requirements. The Customs Health Check creates transparency, identifies risks at an early stage and lays the foundation for secure and controllable customs-related processes.

Part 1 of our four-part Health Check series: Why a (VAT) Health Check can deliver value for your organization and why it should include interface issues with other tax types (combined Health Check).

A celebration to send off valued staff members when they leave is to thank them personally, together with their closest family members, and to look back on what you have achieved to-gether. But companies often combine this with practical business goals such as announcing who will take their place or talking to business customers.

The German trade tax aims to assess the taxable entity – the business operation (“Gewerbebetrieb”) – based on its own earning capacity, without regard to the personal characteristics of the taxpayer or their personal relationship to the taxable entity. In the case of foreign-related aspects of the trade tax, the so-called “territoriality principle” is to be applied. For taxpayers subject to resident income or corporate taxation who operate a business within the meaning of Sect. 2 of the Trade Tax Act, this territoriality must therefore be “established,” inter alia, through the deduction provided for in Sect. 9 no. 3 of the Trade Tax Act. The fourth chamber of the Federal Tax Court has now ruled on the special case of internationally active shipping companies (file number IV R 30/23).

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”.