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The Contribution Procedure Ordinance (BVV) takes effect on 1 January 2027. Answer a few questions now to receive an assessment.

In its judgment of 27 May 2026 (case reference 6 K 2020/22), the Cologne Fiscal Court (Finanzgericht, FG) ruled that non-resident applicants may, subject to certain conditions, have a direct entitlement under EU law to interest on delayed refunds of Germanwithholding tax. Although the case concerned an Austrian private foundation, the ruling is likely to have implications well beyond the individual case for international funds, asset managers, banks and holding companies. Leave to appeal on points of law was granted.

Since 2025, tax audit findings can have implications well beyond the tax originally audited. Section 153(4) of the German Fiscal Code (AO) requires taxpayers to apply audit findings implemented in assessments that have become final and binding to other tax returns, even where these relate to different taxes or periods not previously audited. The interaction between VAT and Insurance Premium Tax (IPT) is particularly sensitive. Under section 4 no. 10 of the German VAT Act (UStG), a single set of facts can affect both tax regimes. This article explains the new compliance obligations, highlights areas of uncertainty in interpreting the rules and outlines how businesses can manage the associated risks systematically.

In its judgment of 20 May 2026 (case reference IV R 37/23; parallel judgment IV R 4/26), the German Federal Fiscal Court (BFH) held that a market support payment paid to a foreign related party may be business-related and consistent with the arm’s length principle where the payment serves to safeguard or increase the payer’s own royalty income. The ruling provides additional arguments in support of existing distribution and limited-risk distributor (LRD) structures.

Where a limited liability company [GmbH] pays a person close to its shareholder an excessive purchase price for a property, real estate transfer tax is assessed on the full purchase price (section 8(1) of the Real Estate Transfer Tax Act [Grunderwerbsteuergesetz–GrEStG]) – even if the excess price, as a hidden profit distribution [verdeckte Gewinnausschüttung–vGA], simultaneously triggers gift tax. An amendment of the real estate transfer tax assessment on account of conflicting tax assessments under section 174(1) sentence 1 of the Fiscal Code [Abgabenordnung–AO] is ruled out, because the relationship of mutual exclusivity between the two taxes covers only gifts of real property within the meaning of section 3 no. 2 sentence 1 of the Real Estate Transfer Tax Act. The decision confirms that section 174 of the Fiscal Code is not a general instrument for overriding the finality of assessments (Federal Fiscal Court [Bundesfinanzhof–BFH] judgement of 29 Jul 2026, file ref. II R 11/24).

Federal Fiscal Court V R 36/24: VAT group despite two-thirds clause with capital majority and sole managing director. Corporation and trade tax: stricter test.

In a demerger [Aufspaltung], the acquiring company need not restart the five-year pre-retention period of the real estate transfer tax group clause. The Federal Fiscal Court [Bundesfinanzhof–BFH] attributes to it, as partial universal successor, the prior holding period of the demerged company, provided the shareholding in the dependent company was included in the division and acquisition agreement. The periods under section 6a of the Real Estate Transfer Tax Act [Grunderwerbsteuergesetz–GrEStG] are not strictly personal but tied to the shareholding. However, the result does not readily extend to spin-offs [Abspaltung], and hive-downs [Ausgliederung], (Federal Fiscal Court judgement of 29 Jul 2026, file ref. II R 5/23).

When valuing limited partnership interests for gift tax purposes, negative values of the share in the jointly held assets (“Gesamthandsvermögen”) must also be taken into account. This applies even where the limited partner’s contribution has been paid in full and there is no obligation to make additional contributions. In its judgement of 29 Jul 2026, file ref. II R 15/23, the Federal Tax Court [Bundesfinanzhof–BFH] contradicts the view of the German tax administration (R B 97.5 of the Inheritance Tax Guidelines 2019 [Erbschaftsteuer-Richtlinien–ErbStR 2019]). This can significantly reduce the assessed acquisition value, particularly in the context of business succession where shareholder loans are transferred at the same time. The decisive factor is the consistent application of the statutory valuation scheme under section 97(1a) of the Valuation Act [Bewertungsgesetz–BewG].

Taxation on the basis of consideration received is a substantial cash-flow advantage for professional practices and other members of the liberal professions [Freiberufler]: VAT need not be paid until the fee comes in. On its wording, section 20 sentence 1 no. 3 of the VAT Act [Umsatzsteuergesetz–UStG] ties the authorisation solely to income from a liberal profession within the meaning of section 18(1) no. 1 of the Income Tax Act [Einkommensteuergesetz–EStG]. By judgement of 16 Apr 2026 (file ref. V R 16/24), however, the fifth chamber of the Federal Fiscal Court [Bundesfinanzhof–BFH] adheres to the position that cash-basis taxation [Ist-Besteuerung] is unavailable where the member of a liberal profession voluntarily uses accrual accounting. At the same time, the fifth chamber refines which records remain not harmful.

The transfer of hidden reserves under section 6b of the Income Tax Act [Einkommensteuergesetz–EStG] is designed on a partner-related basis [gesellschafterbezogen]. It can therefore also take place across the boundaries of a single business. The Federal Fiscal Court [Bundesfinanzhof–BFH] has now ruled that this can include assets of a partnership limited by shares [Kommanditgesellschaft auf Aktien–KGaA] in which the former partners [Mitunternehmer] of a limited partnership [Kommanditgesellschaft–KG] participate as general partners [persönlich haftende Gesellschafter] (Federal Fiscal Court judgement of 21 May 2026, file ref. IV R 21/23). Its status as a corporation does not stand in the way. In practice, however, what matters is the correct implementation in the balance sheets and the coordination of the tax proceedings involved: despite the favourable finding on substantive law, the case was referred back to the Fiscal Court [Finanzgericht–FG].

Since the Annual Tax Act 2020 [Jahressteuergesetz 2020–JStG 2020], the investment deduction [Investitionsabzugsbetrag] under section 7g of the Income Tax Act [Einkommensteuergesetz–EStG] has only been available to businesses whose profit does not exceed EUR 200,000 (section 7g(1) sentence 2 no. 1 (b) of the Income Tax Act). The definition of this “profit” has for a long time been disputed: the tax balance sheet profit, or the profit for tax purposes after off-balance-sheet adjustments? Following the tenth chamber (Federal Fiscal Court [Bundesfinanzhof–BFH] judgement of 1 Oct 2025, file ref. X R 16, 17/23, Federal Tax Gazette [Bundessteuerblatt–BStBl.] II 2026, p. 412), the third chamber of the Federal Fiscal Court has now also decided in favour of the profit for tax purposes (Federal Fiscal Court judgement of 18 Jun 2026, file ref. III R 38/23). In the case at issue, it was once again the non-deductible trade tax (section 4(5b) of the Income Tax Act) that tipped the balance.

Asset losses resulting from theft, embezzlement or breach of trust [Untreue] can constitute business expenses. In principle, this also applies where a relative of the taxpayer caused the loss. In its judgement of 28 Jan 2026 (file ref. X R 21/23), the Federal Fiscal Court [Bundesfinanzhof–BFH] clarified that neither the family relationship nor lax supervision in itself precludes the deduction. What is decisive is the business-related “triggering factor” [auslösendes Moment] of the loss. At the same time, the evidentiary requirements remain high: the taxpayer must set out and prove the actual loss of assets and the fact that it was caused by the business.

Outpatient care services may be exempt from trade tax under section 3 no. 20 (d) of the Trade Tax Act [Gewerbesteuergesetz–GewStG] even where a third party pools the services and bills them to the social insurance bodies. According to the Federal Fiscal Court [Bundesfinanzhof–BFH], the decisive factor is not the civil-law chain of contracts or billing, but who actually provides the care to the sick persons or persons in need of care and who bears the costs in economic terms. The decision strengthens care models based on a division of labour, but at the same time imposes strict requirements on proving that the 40% threshold has been met (Fed-eral Fiscal Court decision of 28 Jul 2026, file ref. VII R 35/24).

If a merger cannot be effected at book value, for example due to the taxation of unrealized gains upon the transfer of assets, the transferred assets must be recognised at fair market value (“gemeiner Wert”) in the tax closing balance sheet pursuant to section 11(1) sentence 1 of the Reorganisation Tax Act [Umwandlungssteuergesetz–UmwStG].

In its judgment of 10 February 2026, the German Federal Court of Justice (Bundesgerichtshof, “BGH”) confirmed the validity under corporate law of a leaver provision commonly used in private equity structures. The BGH clarified that the compulsory repurchase of a management participation is not equivalent to a squeeze-out under corporate law, but must instead be assessed with the principles governing termination clauses (para. 32). The decisive factor is not an isolated assessment of individual contractual provisions, but rather an “overall assessment of all circumstances of the individual case” (para. 47).

Credit institutions generate partially tax-exempt income from fund investments. In the view of the tax authorities, general pooled refinancing costs should therefore generally be excluded from the deduction of business expenses on a pro rata basis. Düsseldorf Tax Court rejects this blanket approach: in the absence of an identifiable causal nexus between the interest expenses and the partially tax-exempt fund income, section 21 of the German Investment Tax Act (Investmentsteuergesetz – InvStG) does not apply. The judgment of Düsseldorf Tax Court of 17 June 2026 (7 K 1535/24 K,G; appeal against denial of leave to appeal pending, Federal Fiscal Court case no. VIII B 69/26) therefore strengthens the requirement for a case-by-case analysis.