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When it comes to income tax, the death of a taxpayer marks a break that, while it does not interrupt the assessment period (section 25(1) of the Income Tax Act [Einkommensteuergesetz–EStG]), does raise numerous other questions. In special provisions such as section 6(3) of the Act and section 11d(1) of the Income Tax Implementation Directive [Einkommensteuerdurchführungsverordnung–EStDV], the legislature has clarified specific issues in this area, just as section 45 of the Fiscal Code [Abgabenordnung–AO] partially resolves procedural issues. However, deductions — such as loss carryforwards under section 10d of the Income Tax Act — do not pass to heirs who are universal successors (section 1922(1) of the Civil Code [Bürgerliches Gesetzbuch–BGB]). The tenth chamber of the Federal Fiscal Court [Bundesfinanzhof–BFH] has now ruled along the same lines regarding the “quasi-special expenses” under section 10f of the Income Tax Act (“Tax relief for listed historic buildings and buildings in redevelopment areas and urban development zones used as residences”; file ref. X R 23/24).

Trade tax liability under section 2(1) of the Trade Tax Act [Gewerbesteuergesetz–GewStG] is substantively linked to business activity under section 15(2) of the Income Tax Act [Einkommensteuergesetz–EStG]. However, there are differences in the timing between income tax and trade tax. Trade tax liability under section 2(1) of the Trade Tax Act only arises once all the conditions that constitute business activity have been met and the business activity has been started. Income tax, on the other hand, covers all business activities starting from the first preparatory step to open a business. With regard to notional business activities (section 15(3) of the Income Tax Act), which also give rise to a trade tax liability, the Federal Fiscal Court [Bundesfinanzhof–BFH] has again now ruled on this issue (file ref. IV R 5/24).

Trade tax liability under section 2(1) of the Trade Tax Act [Gewerbesteuergesetz–GewStG] is substantively linked to business activity under section 15(2) of the Income Tax Act [Einkommensteuergesetz–EStG]. However, there are differences in the timing between income tax and trade tax. Trade tax liability under section 2(1) of the Trade Tax Act only arises once all the conditions that constitute business activity have been met and the business activity has been started. Income tax, on the other hand, covers all business activities starting from the first preparatory step to open a business. With regard to notional business activities (section 15(3) of the Income Tax Act), which also give rise to a trade tax liability, the Federal Fiscal Court [Bundesfinanzhof–BFH] has again now ruled on this issue (file ref. IV R 5/24).

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).

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).

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).

The ninth chamber of the Federal Fiscal Court has issued a ruling on the conditions for off-setting losses against other income. In accordance with long-established case law, the pro-visions in section 22 no. 3 sentences 3 and 4 of the Income Tax Act and section 23(3) sen-tences 7 and 8 of the Income Tax Act are constitutional. In typical cases, a waiver on grounds of equity is not an option.

The distinction between the seven types of income under section 2(1) sentence 1 of the Income Tax Act [Einkommensteuergesetz–EStG] is significant in various contexts, such as when determining the tax rate (section 32a vs. section 32d). From the taxpayer’s perspective, however, the tax base differs due to the partial income method when distinguishing between section 17 (income from business operations) and section 19 (income from employment). From the employer’s perspective, the obligation to withhold income tax only applies to income from employment (sections 38 and following). The Federal Fiscal Court [Bundesfinanzhof–BFH] has now again ruled on this distinction (file ref. IX R 1/25).

Trade tax liability under section 2(1) of the Trade Tax Act [Gewerbesteuergesetz–GewStG] is substantively linked to business activity under section 15(2) of the Income Tax Act [Einkommensteuergesetz–EStG]. However, there are differences in the timing between income tax and trade tax. Trade tax liability under section 2(1) of the Trade Tax Act only arises once all the conditions that constitute business activity have been met and the business activity has been started. Income tax, on the other hand, covers all business activities starting from the first preparatory step to open a business. With regard to notional business activities (section 15(3) of the Income Tax Act), which also give rise to a trade tax liability, the Federal Fiscal Court [Bundesfinanzhof–BFH] has again now ruled on this issue (file ref. IV R 5/24).

The progression clause in section 32b of the Income Tax Act [Einkommensteuergesetz–EStG] for tax-exempt income is an exception to the general tax rate provision in section 32a. This only applies “subject to sections 32b, 32d, 34, 34a, 34b, and 34c” (section 32a(1) second sen-tence). However, the reservation under section 32b is exhaustively defined in a list in section 32b(1). The Federal Fiscal Court [Bundesfinanzhof–BFH] has consistently rejected any expan-sion beyond this list to include other tax-exempt income – particularly from the list in section 3 (file ref. X R 29/22).

Trade tax liability under section 2(1) of the Trade Tax Act [Gewerbesteuergesetz–GewStG] is substantively linked to business activity under section 15(2) of the Income Tax Act [Einkommensteuergesetz–EStG]. However, there are differences in the timing between income tax and trade tax. Trade tax liability under section 2(1) of the Trade Tax Act only arises once all the conditions that constitute business activity have been met and the business activity has been started. Income tax, on the other hand, covers all business activities starting from the first preparatory step to open a business. With regard to notional business activities (section 15(3) of the Income Tax Act), which also give rise to a trade tax liability, the Federal Fiscal Court [Bundesfinanzhof–BFH] has again now ruled on this issue (file ref. IV R 5/24).

For many years now, the trade tax burden has been based solely on the assessment basis of “trade income” (section 6 of the Trade Tax Act [Gewerbesteuergesetz–GewStG]). Although this is calculated from the base amount determined under the Income Tax Act and the Corporate Income Tax Act (section 7 sentence 1 of the Trade Tax Act), it is modified by the provisions of section 7 sentence 2 and following of the Trade Tax Act, sections 7a and 7b, and the add-backs and deductions under sections 8 and 9, particularly to implement the nature of the trade tax as a tax on assets. This also includes an add-back for the temporary transfer of rights, on which the fourth chamber of the Federal Fiscal Court [Bundesfinanzhof–BFH] has now ruled (file ref. IV R 26/23).

Exchanging shares under section 21 of the Reorganisation Tax Act [Umwandlungssteuergesetz–UmwStG] allows a group of companies to be rapidly restructured: shares conferring a controlling interest in one corporation are contributed to another corporation in exchange for the issuance of new shares. If an application is made, the exchange can be valued below fair market value, e.g., at the carrying amount. What’s more, under section 8b(2) of the Corporate Income Tax Act [Körperschaftsteuergesetz–KStG] there is no blocked period for groups in which all the entities are corporations.

In the case of partners in a partnership with limited liability, the transparent taxation under section 15(1) sentence 1 no. 2 of the Income Tax Act is restricted in loss situations. The limited partner may offset and deduct his losses directly only to the extent that he also bears them economically (section 15a(1) of the Income Tax Act [Einkommensteuergesetz–EStG]). Otherwise, pursuant to section 15a(2) of the Income Tax Act, the loss is merely assessed as offsettable [verrechenbar]. In that case, it reduces exclusively future profits from the interest in that specific limited partnership. The Federal Fiscal Court [Bundesfinanzhof–BFH] has now issued a detailed opinion on the special features of paragraph 1a of section 15a of the Income Tax Act, in particular regarding its constitutional assessment (file ref. IV R 27/23).