2026 Annual Preview: Tax Law in the Spotlight of the Federal Constitutional Court

Proceedings before the Federal Constitutional Court relating to income tax (Sect. 8c of the Corporate Income Tax Act)

On March 12, 2026, the German Federal Constitutional Court published its annual preview of expected decisions. Six of the listed cases concern tax law issues, with income tax law being a key focus.

As early as 2025, a significant case regarding minimum taxation was decided (Federal Constitutional Court, judgement dated July 23, 2025, file number 2 BvL 19/14). The Court found no violation of Art. 3(1) of the German Basic Law (“Grundgesetz”). Subsequently, attention turned once again to the “change-of-control” provision of Sect. 8c of the Corporate Income Tax Act.

The issue was first decided in 2017 (file number 2 BvL 6/11) with regard to transfers of more than 25 percent up to 50 percent of the shares. The provision on partial loss carryovers was deemed unconstitutional at that time and later repealed by the Annual Tax Act of 2018. With the referral from the Hamburg Tax Court dated August 29, 2017 (file number 2 K 245/17; file number 2 BvL 19/17 at the Federal Constitutional Court), it is now being examined whether Sect. 8c sent. 2 of the Corporate Income Tax Act - in cases of a detrimental acquisition of more than 50 percent of the shares - is compatible with the general principle of equality. The matter has been pending in Karlsruhe for nearly nine years. 

In the meantime, the Federal Tax Court (“Bundesfinanzhof”) has ordered a stay of enforcement for corresponding loss assessment notices (Federal Tax Court, judgement dated April 12, 2023, file number I B 74/22). However, the tax authorities continue to reject the application of this decision beyond individual cases and refer in particular to the carryforward of losses under Sect. 8d of the Corporate Income Tax Act, which has been in effect since 2016 and is tied to the continuation of the business (Federal Finance Ministry, Circular dated November 20, 2024). A decision by the Federal Constitutional Court would provide significant legal clarity in this matter and bring numerous currently suspended proceedings to a close.

Inheritance Tax Benefits and Offset Restrictions in the Income Tax Act Under Constitutional Scrutiny

The Federal Constitutional Court regularly addresses inheritance tax issues. In particular, the tax benefits for business assets (Sect. 13a, 13b of the Inheritance and Gift Tax Act) have repeatedly been subject to constitutional criticism. Most recently, in 2014 (file number 1 BvL 21/12), the Federal Constitutional Court ruled that the exemption provisions in effect at that time violated Art. 3(1) of the Basic Law and demanded new regulations by June 30, 2016 (on transitional issues, see the judgment of the Federal Tax Court of November 20, 2025, file number II R 7/23). This was implemented by the Act of November 4, 2016. In 2026, the case 1 BvR 804/22 is scheduled for a decision. 

The underlying constitutional complaint (“Verfassungsbeschwerde”) concerns the compatibility with the Basic Law of the inheritance and gift tax benefits for the transfer of business assets under Sect. 13a–13c, 19, 19a, 28a of the Inheritance and Gift Tax Act 2016 and Sect. 203 of the Valuation Act (“Bewertungsgesetz”). A decision could have a significant impact on current political reform discussions. In addition, the Federal Constitutional Court is hearing the case with the file number 2 BvL 3/21, which concerns the limitation on loss carryforward under Sect. 20(6) sent. 5 of the Income Tax Act. The Federal Tax Court questions the constitutionality of the provision under which stock losses may be offset exclusively against stock gains. In substance, this concerns the current version of Sect. 20(6) sent. 4 of the Income Tax Act.

Further expected decisions relating to tax law

Further tax-related decisions are also pending for 2026. The Federal Constitutional Court has recently ruled on the rate of interest under Sect. 233a of the Fiscal Code (“Abgabenordnung”). In a ruling dated July 8, 2021, it determined that the full interest rate of 0.5 percent per month effective from 2014 was incompatible with Art. 3(1) of the Basic Law. The legislature responded by introducing an interest rate of 0.15 percent per month for periods beginning in 2019.

Currently, the Federal Constitutional Court must decide in case 1 BvL 8/24 whether the interest rate on the occasion of a stay of execution under Sect. 237 German Tax Code at a rate of 6 percent between January 1, 2019, and April 15, 2021, was constitutional.

Further decisions concern the tax treatment of special payments in connection with withdrawal from the Federal and State Pension Fund (file numbers 2 BvL 7/14, 2 BvL 8/14) as well as distributions from special securities funds to corporations (Sect. 43(14) Capital Investment Companies Act (“KAGG”); file number 2 BvL 14/24).