Determination of the profit threshold for the investment deduction (“Investitionsabzugsbetrag”) (Sect. 7g of the Income Tax Act)

Tax

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”.

Dr Martin Weiss
| 9 min read | 20 Mar 2026

Business split-up (“Betriebsaufspaltung”) and trade tax

Business split-up | Trade tax

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.

Dr Martin Weiss
| 6 min read | 13 Mar 2026

Typical silent partnership or atypical silent partnership? Co-entrepreneur yes or no?

BFH-Insights

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).

Dr Martin Weiss
| 7 min read | 13 Mar 2026

Actual implementation of the profit and loss transfer agreement in the German fiscal unity

Profit and loss transfer agreement

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.

Dr Martin Weiss
| 7 min read | 12 Mar 2026

Correspondence principle for hidden contributions (Sect. 8(3) sent. 4 of the Corporate Income Tax Act)

Ruling by the German Federal Fiscal Court

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.

Dr Martin Weiss
| 6 min read | 02 Mar 2026

Legal succession with restrictions in share for share exchanges (Sect. 21 of the Reorg Tax Act)

Ruling by the German Federal Fiscal Court

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).

Dr Martin Weiss
| 6 min read | 02 Mar 2026

What is an "item of daily use" for income tax purposes?

Ruling by the German Federal Fiscal Court

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.

Dr Martin Weiss
| 6 min read | 25 Feb 2026

The struggle regarding partially remunerated transfers under Sect. 6(5) sent. 3 of the Income Tax Act

Ruling by the German Federal Fiscal Court

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."

Dr Martin Weiss
| 7 min read | 20 Feb 2026

Income tax deduction prohibitions and deduction restrictions are becoming prevalent

Ruling by the German Federal Fiscal Court

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").

Dr Martin Weiss
| 6 min read | 20 Feb 2026

Reimbursement interest on trade tax is taxable

Ruling by the German Federal Fiscal Court

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).

Dr Martin Weiss
| 6 min read | 06 Feb 2026

Own shares of the corporation can constitute tax pitfalls

Own shares of the corporation can constitute tax pitfalls

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.

Dr Martin Weiss
| 6 min read | 06 Feb 2026

Special business assets at the level of partnerships and no end in sight!

Ruling by the German Federal Fiscal Court

The income taxation of German partnerships has a special feature in the form of "special business assets" (“Sonderbetriebsvermögen”). The consequences of an allocation of assets to the special business assets are far-reaching. These assets do constitute business assets (“Betriebsvermögen”), and unlike private assets for tax purposes, a non-taxable sale is no longer conceivable. In addition, in the case of commercial partnerships, special business assets are also included in the trade tax assessment basis. The German Federal Fiscal Court has described the "subtleties" of a contribution to and withdrawal from the special business assets in detail in a new ruling (file number IV R 20/23).

Dr Martin Weiss
| 6 min read | 06 Feb 2026
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Dr Martin Weiss

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