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The treatment of wages under German double tax treaties essentially follows the regulations of Art. 15 of the OECD Model Convention 2025. Only the state of residence is entitled to tax such income, “unless the employment is performed in the other contracting state.” The regulations in paragraph 2 of Art. 15 then establish exceptions to the source state’s competing right to tax. In this context, the Federal Tax Court has now once again had to rule on a treaty override (Sect. 50d(9) of the Income Tax Act). In cases of substantive errors, however, it can (unfortunately) also “change course” beforehand.

The Inheritance and Gift Tax Act is currently the subject of controversy due to political debates as well as pending decisions by the Federal Constitutional Court. The decision preannounced on the Federal Constitutional Court’s website in case 1 BvR 804/22 specifically concerns the new inheritance tax law, which had been implemented following the Federal Constitutional Court’s 2014 decision (Federal Constitutional Court, judgment dated Dec. 17, 2014, file number 1 BvL 21/12). The Federal Tax Court has now ruled in favor of the tax authorities in a judgment addressing temporal application issues arising from the transition to the new law (judgment of Nov. 20, 2025, file number II R 7/23).

The Federal Constitutional Court publishes an annual list of “planned decisions for the year 2026.” Among the numerous cases are six decisions related to tax law. Particular focus is placed on the constitutional assessment of Sect. 8c of the Corporate Income Tax Act in the context of the acquisition of more than 50 percent of the shares in a corporation, as well as a landmark decision on the inheritance tax benefits under Sect. 13a and 13b of the Inheritance and Gift Tax Act.

The question of how to determine “profit” is relevant in several areas of income tax law. In ad-dition to the assessment basis “profit” in Sect. 2(2) sent. 1 no. 1 of the Income Tax Act, such questions arise particularly in Sect. 4(4a) of the Income Tax Act, Sect. 34a of the Income Tax Act, but also with regard to the investment deduction (“Investitionsabzugsbetrag”) of Sect. 7g(1–4), 7 of the Income Tax Act. In this regard, the Federal Tax Court has now ruled that off-balance-sheet adjustments must also be taken into account when determining this “profit threshold”.

The corporate income tax and income tax are both subject to the “solidarity surcharge”. In addition, church members face an additional income tax burden in the form of the church tax, which in turn reduces the income tax liability as a fully deductible special expense (“Sonderausgabe”; Sect. 10(1) no. 4 of the Income Tax Act). These taxes also present procedural challenges, as a new Federal Tax Court (“Bundesfinanzhof”) ruling (file number X R 28/22) demonstrates.

The business split-up (“Betriebsaufspaltung”) is not regulated by German tax law, but is based on case law. It originally arose with a view to trade tax and its possible erosion when a domi-nant shareholder leases assets to a corporation. In the meantime, it has detached itself from this "context" according to the case law of the Federal Tax Court (“Bundesfinanzhof”) and now has a life of its own that is not enshrined in law. Nevertheless, it continues to have a noticeable impact on trade tax, as a new ruling by the Federal Tax Court (file number IV B 31/25) shows.

Sect. 230 et seqq. of the German Commercial Code (“Handelsgesetzbuch”) specify a single "silent partnership". The silent partner participates "in the commercial business operated by another person with a capital contribution" (Sect. 230(1) of the German Commercial Code). From a tax point of view, on the other hand, the details of the articles of association are of utmost importance. Anyone who "builds" a typical silent partnership gets an almost contractual relationship. Anyone who "builds" an atypical silent partnership gets an almost complete income tax co-entrepreneurship (“Mitunternehmerschaft”) with (almost) all positive and negative consequences. The Federal Fiscal Court has now ruled again on the distinction between the two versions of the silent partnership (file number IV R 24/23).

The profit and loss transfer agreement is a "German peculiarity" for establishing a fiscal unity (“Organschaft”) for income tax purposes. It must be concluded for at least five years and implemented throughout its entire term. Unlike other criteria, such as financial integration, there can be no "interruption" in its implementation. If it is not actually implemented, the fiscal unity cannot be established and must be treated as a "failed fiscal unity." The Federal Tax Court has now specified the details of the actual implementation in a new ruling with great practical relevance.

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.

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).

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.

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").

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).

The repurchase of own shares in a corporation is a well-known means of providing shareholders with cash while not triggering a distribution. However, the fact that it can be a tax pitfall must be taken into account in spite of all the enthusiasm. The negative effects do not only extend to income taxes, where the shareholder's participation quota in a corporation is measured without taking into account the company's own shares. Problems can also arise with real estate transfer tax, where exceeding participation thresholds can also be harmful.