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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].

The condition for the separate and uniform assessment of tax bases is an explicit legal basis in section 179 and following of the German Fiscal Code [Abgabenordnung – AO]. Particularly in the case of (typical or atypical) sub-participations [Unterbeteiligungen], the question therefore frequently arises whether, and on what legal basis, such a determination may be made. In a new judgement, the eighth chamber of the Federal Fiscal Court [Bundesfinanzhof–BFH] has clarified that the tax bases of a typical or atypical sub-participation in a share in a corporation are not to be determined separately and uniformly (section 179(2) sentence 2 Fiscal Code) (VIII R 33/24).

Trade tax losses under section 10a of the Trade Tax Act [Gewerbesteuergesetz–GewStG] are assessed separately in the taxpayer’s favour under sentence 6 of section 10a and, if there is positive trading income, deducted from this in the following tax periods. Like income tax and corporate income tax (section 10d(2) Income Tax Act [Einkommensteuergesetz–EStG]), the conditions for minimum taxation are to be observed (section 10a sentences 1 and 2 Trade Tax Act). For commercial partnerships, the partners are entitled to the loss deduction. If the entire interest is transferred, whether for consideration or not, the loss attributed to the departing partner is forfeited without compensation, as the Federal Fiscal Court [Bundesfinanzhof–BFH] has now confirmed (IV R 14/24).

Income tax law contains numerous “loss schedules”, which make offsetting losses against income from other sources difficult and, in extreme cases, block it entirely. The oldest of these relates to commercial animal breeding and husbandry (section 15(4) sentences 1 and 2 of the Income Tax Act [Einkommensteuergesetz–EStG]). After the Federal Constitutional Court [Bundesverfassungsgericht–BVerfG] approved minimum taxation of profit (ruling of 23/7/2025, 2 BvL 19/14), the sixth chamber of the Federal Fiscal Court [Bundesfinanzhof–BFH], also held on 11 June 2026 (VI R 29/24) that this restriction was constitutional – including when the losses are finally forfeited as a result of the loss carryforward being stretched across time (permanent loss). The focus of advice thereby finally moves to classification and determination for tax purposes.

Minimum taxation on income taxes limits the direct deduction of loss carryforwards in many cases (section 10d(2) of the Income Tax Act [Einkommensteuergesetz–EStG]; section 8(1) sentence 1 of the Corporate Income Tax Act [Körperschaftsteuergesetz–KStG]; section 10a of the Trade Tax Act [Gewerbesteuergesetz–GewStG] carryforwards are definitely forfeited, this can have permanent effects (known as “definite effects” [“Definitiveffekte”] in German). The Federal Constitutional Court [Bundesverfassungsgericht–BVerfG] ruled on 23 July 2025 that the rules were (2 BvL 19714), but also expressly referred to the equity mechanisms in sections 163 and 227 of the Fiscal Code [Abgabenordnung–AO]. The first chamber of the Federal Fiscal Court [Bundesfinanzhof–BFH] has now picked this reference up and specified the conditions that apply for equitable relief for balance-sheet effects from reversals of earlier write-downs (I R 20/25, previously I R 59/12).

Interest deduction in German income tax law is surrounded by numerous prohibitions and restrictions. Once the business-related nature of the expense has been established (section 4(4) of the Income Tax Act [Einkommensteuergesetz–EStG]), the interest limitation rule (section 4h Income Tax Act, section 8a Corporate Income Tax Act [Körperschaftsteuergesetz–KStG]) and the trade tax add-back under section 8 no. 1 of the Trade Tax Act [Gewerbesteuergesetz–GewStG], among other things, must be observed. There are further restrictions from section 4(4a) of the Income Tax Act for “special situations”. In a cross-border context, the Federal Fiscal Court [Bundesfinanzhof–BFH] has now ruled for the first time on the “anti-double-dip” rule contained in section 4i of the Income Tax Act (file ref. IV R 36/23).

For income tax purposes, partnerships are treated as transparent as far as income tax and corporate income tax are concerned. By contrast, they only incur trade tax if there is a trade or business as defined by Income Tax Act [Einkommensteuergesetz–EStG] (section 2(1) sentence 2 of the Trade Tax Act [Gewerbesteuergesetz–GewStG]), but then in its entirety (section 15(3) no. 1 Income Tax Act). This tax is then also owed by the partnership itself (section 5(1) sentence 3 Trade Tax Act). In a cross-border context, double taxation treaties (DTTs) must frequently be included in the considerations, and concerning all types of income tax as well. In the context of the Germany-Switzerland DTT the Federal Fiscal Court [Bundesfinanzhof–BFH] has handed down another decision in the area of shipping (file ref. IV R 32/23).

“Transfer profit” [Übernahmegewinn] is one of the four types of profit concerning which reorganisation tax law provides rules on how they come about and on their income tax treatment. In the case of reorganisations into a partnership, the keyword “elimination of acquisition costs” (section 4(6) sentence 6 of the Reorganisation Tax Act [Umwandlungssteuergesetz–UmwStG]; section 18(2) sentence 1) is frequently discussed under section 4(4) and following of that Act (most recently Federal Fiscal Court [Bundesfinanzhof–BFH] judgement of 28 May 2026, file ref. IV R 3/23). Increasingly, however, doubts are also being raised about the income tax treatment of the takeover profit that arises when corporations are reorganised into other corporations (section 12(2); section 19(1)). The tenth chamber of the Federal Fiscal Court has now expressed doubts with regard to the EU Merger Directive (2009/133/EC; section 1(5) no. 1 of the Reorganisation Tax Act) in an order for reference to the European Court of Justice (Art. 267(3) TFEU; file ref. X R 27/22).

Where corporations are reorganized into partnerships - for instance by way of a merger (section 2 of the Reorganization Act [Umwandlungsgesetz–UmwG]) or by way of a change of legal form (section 190) – various “gains” are triggered under the Reorganization Tax Act. The “transfer gain” [Übertragungsgewinn] can in many cases be mitigated or avoided altogether by filing an application (section 3(2) of the Reorganization Tax Act); the “takeover gain” and the “takeover loss” [Übernahmegewinn/Übernahmeverlust] (section 4(4)), by contrast, cannot. A takeover loss cannot be taken into account at all for trade tax purposes (section 18(2) sentence 1), while for income tax purposes it may be taken into account only to a limited extent (section 4(6)). The Federal Tax Court [Bundesfinanzhof–BFH] has now ruled on this matter once again (file ref. IV R 3/23).