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

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).

Alterations to a “tax regime” are notoriously difficult. Whether it is the transition from the tax-ation of capital income (Sect. 20 of the German Income Tax Act) to the flat-rate withholding tax regime (Sect. 32d of the German Income Tax Act) or the fundamental switch from the credit method to the half/partial income method for the taxation of corporations and their shareholders, frictions always arise at the intersection of the regimes. Which problems arose during the transition from the previous system of semi-transparent taxation of public investment funds to an opaque system on December 31, 2017?

The liability to trade tax (under Sect. 2 of the Trade Tax Act) is a prerequisite for any trade tax being charged in the first place. In many cases, this prerequisite is fulfilled without any problems – for example, in the case of an original commercial (“trading”) activity pursuant to Sect. 15(2) of the Income Tax Act (picked up by Sect. 2(1) sent. 2 of the Trade Tax Act). The situation is even more straightforward for corporations due to an assumption of a trad-ing activity by law (Sect. 2(2) sent. 1 of the Trade Tax Act). However, in which manner are foundations (“Stiftungen”) to be taxed under the Trade Tax Act?