Federal Fiscal Court ruling: constitutionality of the provision concerning 5.5% interest in the Valuation Act

BFH-Insights

The overall real interest rate plays a role in various areas of tax law, but it is not always “automatically” implemented into tax law by the legislature. Pension provisions are to be discounted at a “fixed” interest rate of 6%. But other provisions are discounted using an equally “fixed” interest rate of 5.5%. The 5.5% interest rate is also used in the Valuation Act [Bewertungsgesetz–BewG], where it is applied throughout the provisions of sections 12 and following. The Federal Fiscal Court [Bundesfinanzhof–BFH] has now ruled on the level of the statutory interest rate regarding section 14 (“lifetime usufructs and benefits”) (file ref. II R 35/23).

Dr Martin Weiss
| 6 min read | 24 Jun 2026

Trade Tax Add-Back of Water Use Charges

BFH on the Trade Tax Add-Back of expenses for the licensing of rights

Trade tax add-backs and deductions directly affect the amount of trade tax payable. In practice, section 8 no. 1 letter f) of the German Trade Tax Act (GewStG) frequently raises difficult questions of interpretation, particularly where public-law rights of use are concerned. In its recent decision, the Federal Fiscal Court (BFH) clarified when payments qualify as expenses for the licensing of rights within the meaning of this provision — and when they relate merely to a permit with no independent economic value.

Dr Gregor Weimer
| 3 min read | 02 Jun 2026

Federal Fiscal Court judgement: scope of exemptions from the EU Parent-Subsidiary Directive

BFH-Insights

The European Union Parent-Subsidiary-Directive aims to eliminate economic double taxation within a corporate group in the case of cross-border distributions of profit. To do this it avoids burdens from withholding tax on distributions within the EU, among other things. In its implementation in Germany, in section 43b of the Income Tax Act [Einkommensteuergesetz–EStG], full exemption from withholding taxes is tied to a twelve-month holding period and a minimum shareholding of 10%. Alongside this is an exception under section 43b(1) sentence 4 for investment income as defined by section 20(1) no. 1 received in connection with the liquidation or reorganisation of a subsidiary. The Federal Fiscal Court has now ruled on this particularity (file ref. VIII R 8/24).

Dr Martin Weiss
| 6 min read | 28 May 2026

Federal Fiscal Court ruling: deduction of losses from other income under section 22 of the Income Tax Act

BFH-Insights

The ninth chamber of the Federal Fiscal Court has issued a ruling on the conditions for off-setting losses against other income. In accordance with long-established case law, the pro-visions in section 22 no. 3 sentences 3 and 4 of the Income Tax Act and section 23(3) sen-tences 7 and 8 of the Income Tax Act are constitutional. In typical cases, a waiver on grounds of equity is not an option.

Dr Martin Weiss
| 5 min read | 26 May 2026

Federal Fiscal Court ruling: distinction between sale under section 17 of the Income Tax Act and wages under section 19 of the Income Tax Act

BFH-Insights

The distinction between the seven types of income under section 2(1) sentence 1 of the Income Tax Act [Einkommensteuergesetz–EStG] is significant in various contexts, such as when determining the tax rate (section 32a vs. section 32d). From the taxpayer’s perspective, however, the tax base differs due to the partial income method when distinguishing between section 17 (income from business operations) and section 19 (income from employment). From the employer’s perspective, the obligation to withhold income tax only applies to income from employment (sections 38 and following). The Federal Fiscal Court [Bundesfinanzhof–BFH] has now again ruled on this distinction (file ref. IX R 1/25).

Dr Martin Weiss
| 5 min read | 21 May 2026

Federal Fiscal Court ruling: when does trade tax liability for notional business activities arise?

BFH-Insights

Trade tax liability under section 2(1) of the Trade Tax Act [Gewerbesteuergesetz–GewStG] is substantively linked to business activity under section 15(2) of the Income Tax Act [Einkommensteuergesetz–EStG]. However, there are differences in the timing between income tax and trade tax. Trade tax liability under section 2(1) of the Trade Tax Act only arises once all the conditions that constitute business activity have been met and the business activity has been started. Income tax, on the other hand, covers all business activities starting from the first preparatory step to open a business. With regard to notional business activities (section 15(3) of the Income Tax Act), which also give rise to a trade tax liability, the Federal Fiscal Court [Bundesfinanzhof–BFH] has again now ruled on this issue (file ref. IV R 5/24).

Dr Martin Weiss
| 8 min read | 18 May 2026

Federal Fiscal Court ruling: no “universal” progression clause under section 32b of the Income Tax Act

BFH-Insights

The progression clause in section 32b of the Income Tax Act [Einkommensteuergesetz–EStG] for tax-exempt income is an exception to the general tax rate provision in section 32a. This only applies “subject to sections 32b, 32d, 34, 34a, 34b, and 34c” (section 32a(1) second sen-tence). However, the reservation under section 32b is exhaustively defined in a list in section 32b(1). The Federal Fiscal Court [Bundesfinanzhof–BFH] has consistently rejected any expan-sion beyond this list to include other tax-exempt income – particularly from the list in section 3 (file ref. X R 29/22).

Dr Martin Weiss
| 6 min read | 18 May 2026

Federal Fiscal Court ruling: procedural law for tiered partnerships

BFH-Insights

Trade tax liability under section 2(1) of the Trade Tax Act [Gewerbesteuergesetz–GewStG] is substantively linked to business activity under section 15(2) of the Income Tax Act [Einkommensteuergesetz–EStG]. However, there are differences in the timing between income tax and trade tax. Trade tax liability under section 2(1) of the Trade Tax Act only arises once all the conditions that constitute business activity have been met and the business activity has been started. Income tax, on the other hand, covers all business activities starting from the first preparatory step to open a business. With regard to notional business activities (section 15(3) of the Income Tax Act), which also give rise to a trade tax liability, the Federal Fiscal Court [Bundesfinanzhof–BFH] has again now ruled on this issue (file ref. IV R 5/24).

Dr Martin Weiss
| 7 min read | 18 May 2026

Add-backs for trade tax purposes for the temporary transfer of rights

BFH-Insights

For many years now, the trade tax burden has been based solely on the assessment basis of “trade income” (section 6 of the Trade Tax Act [Gewerbesteuergesetz–GewStG]). Although this is calculated from the base amount determined under the Income Tax Act and the Corporate Income Tax Act (section 7 sentence 1 of the Trade Tax Act), it is modified by the provisions of section 7 sentence 2 and following of the Trade Tax Act, sections 7a and 7b, and the add-backs and deductions under sections 8 and 9, particularly to implement the nature of the trade tax as a tax on assets. This also includes an add-back for the temporary transfer of rights, on which the fourth chamber of the Federal Fiscal Court [Bundesfinanzhof–BFH] has now ruled (file ref. IV R 26/23).

Dr Martin Weiss
| 6 min read | 13 May 2026

Applications related to exchanges of shares under section 21 of the German Reorganisation Tax Act

BFH-Insights

Exchanging shares under section 21 of the Reorganisation Tax Act [Umwandlungssteuergesetz–UmwStG] allows a group of companies to be rapidly restructured: shares conferring a controlling interest in one corporation are contributed to another corporation in exchange for the issuance of new shares. If an application is made, the exchange can be valued below fair market value, e.g., at the carrying amount. What’s more, under section 8b(2) of the Corporate Income Tax Act [Körperschaftsteuergesetz–KStG] there is no blocked period for groups in which all the entities are corporations.

Dr Martin Weiss
| 7 min read | 21 Apr 2026

Subsequent contributions to loss carryforward under section 15a of the Income Tax Act

BFH-Insights

In the case of partners in a partnership with limited liability, the transparent taxation under section 15(1) sentence 1 no. 2 of the Income Tax Act is restricted in loss situations. The limited partner may offset and deduct his losses directly only to the extent that he also bears them economically (section 15a(1) of the Income Tax Act [Einkommensteuergesetz–EStG]). Otherwise, pursuant to section 15a(2) of the Income Tax Act, the loss is merely assessed as offsettable [verrechenbar]. In that case, it reduces exclusively future profits from the interest in that specific limited partnership. The Federal Fiscal Court [Bundesfinanzhof–BFH] has now issued a detailed opinion on the special features of paragraph 1a of section 15a of the Income Tax Act, in particular regarding its constitutional assessment (file ref. IV R 27/23).

Dr Martin Weiss
| 6 min read | 21 Apr 2026

The procedural approach to atypical silent partnerships

BFH-Insights

The only silent partnership in commercial law is that under sections 230 and following of the German Commercial Code [Handelsgesetzbuch–HGB]. This is an internal partnership without any assets of its own. Under income tax law, it essentially constitutes a “fully fledged” partnership if the silent partnership has been established in relation to a business operation or if the conditions for the notional business activities under section 15(3) of the Income Tax Act are met (Explanatory Notes to the Income Tax Act [Einkommensteuer-Hinweise–EStH] 15.8(6), “Atypical silent partnership”). Procedural law is also challenging, particularly in cases where the atypical silent partnership has been established in relation to a partnership. The first chamber of the Federal Fiscal Court [Bundesfinanzhof–BFH] has now ruled on this matter (file ref. I R 13/25, previously I R 4/13).

Dr Martin Weiss
| 6 min read | 21 Apr 2026
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