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In the area of income taxes, taxpayers have numerous election rights that can have a significant impact on their tax burden. The income tax consequences are not always as dramatic as those resulting from the extended deduction under section 9 no. 1 sentence 2 and following of the Trade Tax Act [Gewerbesteuergesetz–GewStG], which triggers an (almost complete) exemption from trade tax. Other elections can reduce the income tax burden, for example, when electing for the partial income method (“Teileinkünfteverfahren”; section 32d(2) no. 3 of the Income Tax Act [Einkommensteuergesetz–EStG]), which makes actual income-related expenses deductible. With regard to the deduction for special expenses under section 10a, the Federal Fiscal Court [Bundesfinanzhof–BFH] has now once again ruled on making elections and the procedural implications (file ref. X R 28/24).

Under German tax law, shipping is particularly supported in a national context through imput-ed taxation (“tonnage taxation”; “Tonnagenbesteuerung”) under section 5a of the Income Tax Act [Einkommensteuergesetz–EStG] and section 7 sentence 3 of the Trade Tax Act [Gew-erbesteuergesetz–GewStG]. In a cross-border context, ship personnel who are subject to non-resident tax liability only derive German-source income under (a) of section 49(1) no. 4 of the Income Tax Act, whereas flight personnel must also observe an additional specific provi-sion in letter (e). Furthermore, German double tax treaties (DTT) often contain provisions modeled after article 15(3) of the 2025 OECD Model Convention, on which the Federal Fiscal Court [BFH; Bundesfinanzhof] has now ruled (file ref. VI R 1/24).

A declaration procedure is to be added to the conditions VAT groups must satisfy in future. In the draft bill for an Annual Tax Act dated 19 May 2026, the current rules on VAT groups (section 2(2) no. 2 VAT Act) were rescinded and replaced by new rules in draft section 2c. The familiar conditions for inclusion – financial, economic and organisational inclusion – and the legal consequences of VAT grouping basically remain the same. What is new is that from 1 January 2029 a VAT group will only take effect when the controlling company explicitly submits a declaration to the tax office. It will also be possible to include partnerships as controlled companies in future if they satisfy the conditions for inclusion.

New rules for electricity tax exemptions from 2026 – changes to applications, the definition of plant, and obligations for operators of solar, wind and CHP plants.

On 12 June 2026 the Bundesrat, the upper house of parliament, agreed to a simplification of the notification requirement for real estate transfer tax (RETT) for share deals. This legislative initiative had been triggered by a ruling from the Federal Fiscal Court (BFH dated 27/10/2025, II B 47/25), in which the court expressed serious doubts about the authorities’ current practice. According to this practice, for a share deal separate RETT notifications had to be submitted both on signing and on closing – a structure that caused a risk of double taxation and considerable uncertainty in practice.

The overall real interest rate plays a role in various areas of tax law, but it is not always “automatically” implemented into tax law by the legislature. Pension provisions are to be discounted at a “fixed” interest rate of 6%. But other provisions are discounted using an equally “fixed” interest rate of 5.5%. The 5.5% interest rate is also used in the Valuation Act [Bewertungsgesetz–BewG], where it is applied throughout the provisions of sections 12 and following. The Federal Fiscal Court [Bundesfinanzhof–BFH] has now ruled on the level of the statutory interest rate regarding section 14 (“lifetime usufructs and benefits”) (file ref. II R 35/23).

In a notice issued on 28/05/2026 (S 2332.1.1-29/4 St36) the Bavarian Tax Office addressed the payroll tax treatment of employee-owned shares subject to a liquidation preference – hurdle or growth shares, as they are known. The notice is of particular relevance to start-ups, growth companies and private equity structures. It clarifies that hurdle or growth shares do not automatically result in employment income. What is crucial is instead how the shares are actually structured, valued, validly implemented under company law, and how the ownership model is actually vested.

The global tax landscape is not merely changing – it is undergoing a fundamental structural transformation and for good. Companies can no longer simply react to changes; they need to strategically and proactively realign their tax function.

German Federal Fiscal Court confirms potential 0% withholding tax relief for US S-Corporations and comparable hybrid structures. In a decision published recently (BFH dated 11 March 2026 – I R 13/23), the German Federal Fiscal Court (Bundesfinanzhof – BFH) confirmed that the participation exemption under Art. 10(3) of the US–Germany Double Tax Treaty (“DTT US”) may also apply to qualifying US S-Corporation (“S-Corp”) structures. The decision may also have implications for certain US LLC structures and other hybrid entities.

Preservation of Tax Loss Carryforwards in Corporate Restructurings: German Tax Authorities Clarify the Restructuring Exception

Trade tax add-backs and deductions directly affect the amount of trade tax payable. In practice, section 8 no. 1 letter f) of the German Trade Tax Act (GewStG) frequently raises difficult questions of interpretation, particularly where public-law rights of use are concerned. In its recent decision, the Federal Fiscal Court (BFH) clarified when payments qualify as expenses for the licensing of rights within the meaning of this provision — and when they relate merely to a permit with no independent economic value.

In practice, cross-border business activities between Germany and Switzerland involve numerous tax and customs issues. Errors often arise not because of a lack of specialist knowledge, but due to the complex interfaces between different types of taxes, processes and organisational units. A structured VAT and customs health check creates transparency, identifies risks early and points out specific potential for optimisation – before any issues arise with tax or customs authorities.

The planned restriction of immunity from prosecution through voluntary disclosure under section 371 of the German Fiscal Code (Abgabenordnung – AO) marks a fundamental shift in tax criminal law. Not only private individuals, but businesses as well, may lose a key instrument for addressing tax risks through full disclosure. In future, depending on the amount of tax evaded, voluntary disclosure would no longer lead to immunity from prosecution, but would merely have a mitigating effect on sentencing. This reform would significantly increase the pressure on businesses and reinforce the need for early, reliable risk identification, as well as a realignment of tax and defence strategies.

Assets may be transferred between related parties – such as a transfer to the next genera-tion – without consideration (“anticipated succession”). But they may also be carried out for consideration, particularly if this does not trigger income taxation for the transferor (e.g. sec-tion 23 of the Income Tax Act [Einkommensteuergesetz–EStG] outside the “ten-year peri-od”). According to case law up till now, the interest-free deferral of the underlying claim in the form of an installment payment agreement gave rise to income from capital assets (sec-tion 20(1) no. 7). The eighth chamber of the Federal Fiscal Court [Bundesfinanzhof–BFH] has now departed from this long-standing, established case law (file refs. VIII R 30/24, VIII R 1/23).

The European Union Parent-Subsidiary-Directive aims to eliminate economic double taxation within a corporate group in the case of cross-border distributions of profit. To do this it avoids burdens from withholding tax on distributions within the EU, among other things. In its implementation in Germany, in section 43b of the Income Tax Act [Einkommensteuergesetz–EStG], full exemption from withholding taxes is tied to a twelve-month holding period and a minimum shareholding of 10%. Alongside this is an exception under section 43b(1) sentence 4 for investment income as defined by section 20(1) no. 1 received in connection with the liquidation or reorganisation of a subsidiary. The Federal Fiscal Court has now ruled on this particularity (file ref. VIII R 8/24).

Building sites and construction and installation projects abroad are a key part of business for international machinery and plant engineering firms. So is the risk of unintentionally establishing a tax-relevant permanent establishment. For the first time since 1999, the new draft Federal Ministry of Finance Circular of 13 February 2026 has updated administrative practice on the concept of permanent establishments, again placing a particular focus on permanent establishments relating to building sites and construction and installation projects. Alongside the familiar duration thresholds and issues of attribution, the draft also shows that permanent establishment risks do not only arise from standard construction and installation activities. Accompanying planning, monitoring, and subsequent services, maintenance or repairs abroad, such as the long-term use of even very small spaces at the customer’s premises (e.g. a locker), may also establish a “general” permanent establishment under Art. 5(1) of the OECD Model Tax Convention. This article presents the main changes and evaluates their significance, particularly to machinery and plant engineering firms. For simplicity, in the following we will often refer simply to construction and installation projects, though building sites are also covered.