Read our insights, reports and more

The tax-neutral transfer of special business assets ahead of a change of legal form is a popular structuring approach in advisory practice, but it carries risks. The Saxony-Anhalt Fiscal Court has recently ruled that a gap of just ten days and the absence of a legal link between the implementation steps can result in the retrospective taxation of hidden reserves. An appeal on points of law is pending before the Federal Fiscal Court (BFH), so the issue has not yet been finally resolved.

If a successor [unentgeltlicher Rechtsnachfolger] sells shares received within the seven-year lock-up period [Sperrfrist], a contribution gain [Einbringungsgewinn I] arises retroactively (section 22(1) sentence 1 of the Reorganisation Tax Act [Umwandlungssteuergesetz–UmwStG]). To whom this gain is to be attributed has been disputed, because section 22(6) of the Reorganisation Tax Act deems the successor to be the contributing party. The tenth chamber of the Federal Fiscal Court [Bundesfinanzhof–BFH] has now ruled that the gain is to be attributed to the original contributing party. A foundation [Stiftung] as heir is therefore not subject to corporation tax on the gain but is taxed on it, as universal successor [Gesamtrechtsnachfolgerin], at the deceased’s income tax rate. The Federal Fiscal Court applies a teleological reduction to the wording, which it considers unambiguous in this respect (Federal Fiscal Court judgement of 22 Sep 2026, file ref. X R 8/24).

On the basis of section 34c(5) of the Income Tax Act [Einkommensteuergesetz–EStG], the Circular on Foreign Activity [Auslandstätigkeitserlass–ATE] exempts from tax the employment income from certain activities abroad, including activities within the framework of German public development aid. The tax authorities were entitled to restrict this to projects financed directly from German budgetary funds. Projects of the European Development Fund [Europäischer Entwicklungsfonds–EDF] are not covered. After the Court of Justice of the European Union [Europäischer Gerichtshof–EuGH] declared the practice compatible with EU law, the Federal Fiscal Court [Bundesfinanzhof–BFH] has now also confirmed it: the courts examine only whether the interpretation of general administrative instructions is possible and not arbitrary (Federal Fiscal Court order of 2 Sep 2026, file ref. I R 51/23 (I R 20/18)).

Where a hidden profit distribution [verdeckte Gewinnausschüttung–vGA] is recognised at the level of a limited liability company [GmbH], a final tax assessment notice issued to the shareholder may also be amended under section 32a(1) of the Corporation Tax Act [Körperschaftsteuergesetz–KStG]. The Federal Fiscal Court [Bundesfinanzhof–BFH] interprets the provision broadly: it covers not only the capital income arising from the hidden profit distribution but also its indirect consequences – for instance a hidden contribution [verdeckte Einlage] to a sister company which, as subsequent acquisition costs, increases a liquidation loss under section 17(4) of the Income Tax Act [Einkommensteuergesetz–EStG]. In substantive terms, however, the Federal Fiscal Court draws clear limits: the hidden contribution is to be recognised only at the going-concern value [Teilwert] of the receivable (Federal Fiscal Court judgement of 8 Sep 2026, file ref. IX R 16/25).

Property companies may manage their own capital assets alongside their real property without jeopardising the extended trade tax reduction [erweiterte Kürzung] under section 9 no. 1 sentence 2 of the Trade Tax Act [Gewerbesteuergesetz–GewStG]. This may also include forming a limited liability company [GmbH] and holding its shares. If, however, the GmbH is formed for others, that is, with the aim of transferring the shares onwards shortly afterwards, there is no harvesting of fruits [Fruchtziehung] from the company’s own capital assets. This also applies where the shares are, as planned, transferred to the company’s own shareholders or to persons related to them. The Federal Fiscal Court [Bundesfinanzhof–BFH] does not require market participation recognisable to third parties (Federal Fiscal Court judgement of 18 Jun 2026, file ref. III R 29/23).

In a letter dated 20 October 2026, the Federal Ministry of Finance (BMF) responded to the judgment of the Federal Fiscal Court (BFH) of 11 December 2025 (IV R 17/23, DStR 2026, 395): for part-consideration transfers of individual assets under section 6(5) sentence 3 of the Income Tax Act (EStG), a gain now arises in all open cases only to the extent that the consid-eration exceeds the book value. The tax authorities are abandoning the ‘strict separation theo-ry’ and revoking their 2013 non-application decree. This article explains what is changing, where the BMF letter goes beyond the judgment, why loss cases may turn into a trap and for whom an application to apply the previous legal position is worthwhile.

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].