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In a circular dated December 29, 2025, the Federal Ministry of Finance announced changes to fields in, among other things, the • 2026 advance VAT return • 2026 yearly VAT return • special advance payment of VAT for 2026 • income tax return 2025.

In its judgement of 30 July 2025 (file ref. X R 7/23), the Federal Fiscal Court (BFH) held that the filing deadline for the 2019 tax return that was extended by statute does not have the same effect as an official deadline extension as defined by section 109 of the Fiscal Code (AO). Consequently, if it is filed late, it is compulsory to charge a late-filing penalty under sec-tion 152(2) AO. The Federal Fiscal Court held that the exception under section 152(2) no. 1 AO, which would have allowed a discretionary decision under section 152(1) AO, was ruled out because the conditions were not met. The claimant was not able to derive the possibility of a discretionary decision from the FAQs on “Corona” (taxes), the legal character of which the Federal Fiscal Court also commented on in its judgement.

A change is pending to the VAT treatment of public services that constantly run at a loss. The new Federal Ministry of Finance Circular of 20 January 2026 makes the requirements much stricter on the nature of consideration, business activity and thus also the deductibility of input VAT for operations that constantly run at a loss. In future, public services will have to meet stricter checks, particularly regarding the cost/income ratio and the link to subsidies. The new legal situation implements the decisions of the European Court of Justice (ECJ) and the Federal Tax Court (Bundesfinanzhof – BFH). It compels legal persons under public law (municipalities, cities, local government), but also other private operators outside the public sector, to examine and reorientate the interests they hold under private law (e.g. municipal utilities [Stadtwerke]) in private legal forms, their structures and financing models.

The legislature has prescribed correspondence principles for both hidden profit distributions and hidden contributions. Taxation at the company level thus has an impact on tax exemptions for shareholders (in the case of hidden profit distributions, Sect. 8b(1) sent. 2 ff. of the Corporate Income Tax Act). Conversely, the treatment at the shareholder level has an impact on the company's income (in the case of hidden contributions, Sect. 8(3) sent. 4 ff. of the Corporate Income Tax Act). The Federal Fiscal Court has now published a surprising ruling.

Reorganizations under the German Reorg Tax Act (“Umwandlungssteuergesetz”) are often favored for income tax purposes via the opportunity to apply book values upon request. However, a reorg also entails other legal consequences. In particular, the "retroactive effect" provisions of the Reorg Tax Act implement a different allocation of income in the retroactive period (“Rückwirkungszeitraum”, Sect. 2, 20(5, 6) Reorg Tax Act). In addition, provisions such as Sect. 4(2) of the Reorg Tax Act prescribe a special legal succession. The extent of this legal succession is controversial, particularly in the case of share for share exchanges (Sect. 21 of the Reorg Tax Act).

In its judgement on 9 September 2025 (file ref. VI R 7/23), the Federal Fiscal Court (BFH) answered an important question on company car taxation: can costs for a parking space or garage paid by the employee reduce the non-monetary benefit from the private use of a company car?

Since 1 January 2025, new submission requirements have applied to transfer pricing documentation, in particular with respect to the transaction matrix. The objective was to support a more risk‑based and efficient tax audit process. In practice, however, the local file is often requested almost simultaneously, while the statutory submission deadline remains limited to 30 days. One year after the introduction of the transaction matrix, we take stock of practical experience and outline considerations on how companies can meet deadlines, mitigate surcharge risks and organise evidence retention.

The planned discontinuation of natural gas is having a significant impact on the use of existing natural gas infrastructures, particularly gas networks. In light of this, many network operators are increasingly facing the question of how gas networks are to be treated for accounting if their economic useful lives are shortened or if decommissioning is expected.

Private assets for tax purposes are "only" subject to taxation under the provisions of Sect. 17, 20(2) and 23 of the German Income Tax Act. However, in the case of Sect. 23 of the Income Tax Act, the income tax relevance is limited in terms of time and substance. While the time dimension covers a maximum of 10 years, "other assets" than real estate are also covered in terms of substance. However, "items of daily use" are excluded. The Federal Fiscal has now had to clarify the scope of this provision once again.

In its Circular of 19 December 2025, the German Ministry of Finance updated its Circular of 12 December 2023 (BStBl. I 2023, p. 2179) on the tax treatment of employment income under double taxation agreements (DTAs). Note: The paragraph numbers below refer to this Circular.

The partially remunerated transfer of individual assets has recently caused a stir, particularly in the area of privately held tax assets. This is where the "strict separation theory" applies, according to which, for the purpose of determining the profit from a private sale (e.g., Sect. 23 of the Income Tax Act), a division into a fully remunerated and a fully non-remunerated part is made according to the ratio of the consideration to the market value of the transferred asset (Judgment of the Federal Tax Court dated March 11, 2025, file number IX R 17/24). In the area of taxable business assets, there is still uncertainty regarding this issue, which the fourth chamber of the Federal Tax Court has now decided in favor of the "modified separation theory."

Prohibitions and restrictions on deductions for business expenses can be found in numerous provisions in German tax law. In particular, Sect. 4 et seqq. of the German Income Tax Act contain comprehensive prohibitions on deductions, although Sect. 4g of the Income Tax Act also includes "unsystematic" provisions to mitigate immediate taxation. However, the vast majority of provisions restrict the deduction of business expenses. Sect. 4k of the Income Tax Act, for example, contains a very comprehensive prohibition on deductions, induced by EU law, for expenses that are related in the broadest sense to "tax incongruities" between countries. The "license barrier" of Sect. 4j of the Income Tax Act, on the other hand, has been abolished with effect from the 2025 assessment period (Sect. 52(8c) sent. 3 of the Income Tax Act). For other provisions – such as Sect. 4i of the Income Tax Act covering special operating expenses in a cross-border context – repeal is only being discussed at this stage. The Federal Fiscal Court has now ruled again on the first applicability of Sect. 4f of the Income Tax Act ("assumption of obligations").

Weekly, precise classifications of current Federal Fiscal Court rulings. All relevant decisions explained concisely and summarised in a practical manner.

Collaborating with international service providers is often more complex than it seems at first glance. Typical mistakes in the selection process can lead to delays, compliance risks and significant follow-up costs. This article highlights the pitfalls companies should avoid and the key criteria that determine how to successfully select an international service provider and ensure long-term success of your projects.

Sect. 233a(1) sent. 1 of the General Fiscal Code (“Abgabenordnung”) specifies a canon of taxes on which reimbursement interest is payable – these taxes include the German trade tax. If a business receives such reimbursement interest, the question arises whether it must in turn pay tax on it as business income. Income taxes are then deducted from the 1.8 per-cent “credit interest” (Sect. 238(1a) General Fiscal Code), resulting in an “imbalance”: Debit interest under Sect. 233a General Fiscal Code is not deductible from income taxes as an ancillary tax payment (“steuerliche Nebenleistung”; Sect. 3(4) no. 4 General Fiscal Code; Sect. 4(5b) Income Tax Act), but credit interest is fully taxable. The German Federal Fiscal Court has now confirmed this treatment for the trade tax (file number IV R 16/23).

On 5 January 2026 the 147 countries and jurisdictions included in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS Inclusive Framework) agreed on the main elements of a package for the Side-by-Side System in OECD global minimum taxation.