The passive loss of the German right to tax (“Entstrickung”) of assets

BFH-Insights

A “withdrawal” (Sect. 4(1) sent. 2 of the Income Tax Act) of business assets generally leads to the realization of hidden reserves. However, this requires the taxpayer to perform an act of withdrawal. Sect. 4(1) sent. 3 and 4 of the Income Tax Act creates a fictitious withdrawal if German taxation rights are excluded or limited. The Federal Tax Court (file numbers I R 41/22, I R 6/23) - in agreement with the tax authorities - considers the elements of the legal rule regarding the loss of the German right to tax to be fulfilled even if this impairment of the right to tax is not triggered by the taxpayer, but by a change in the legal framework (“passive loss of the German right to tax (“Entstrickung”)”).

Dr Martin Weiss
| 7 min read | 14 Apr 2026

Trade tax liability on capital gains from a participation in a partnership

BFH-Insights

The sale of a participation in a partnership triggers consequences under trade tax law that “require some getting used to”. If a natural person holding a direct interest sells his participation, no trade tax is due at all, except in the cases specified in Sect. 18(3) of the Reorg Tax Act (“Umwandlungssteuergesetz”). If, on the other hand, a corporation sells its participation, trade tax is due in every case (Sect. 7 sent. 2 no. 2 of the Trade Tax Act), which the partnership whose participation was sold owes itself. The Federal Tax Court had to decide (file number III R 38/22) whether trade tax is due for the selling corporation if the sold partnership is not yet subject to trade tax under Sect. 2 of the Trade Tax Act.

Dr Martin Weiss
| 6 min read | 10 Apr 2026

Taxation of Severance Payments Under German Double Tax Treaties

BFH-Insights

Severance payments are made for the loss of a job. Case law from the Federal Tax Court (“Bundesfinanzhof”) has clarified that such compensation constitutes income from employment within the meaning of Sect. 19 of the German Income Tax Act (e.g. Federal Tax Court, Judgement dated August 1, 2024, file number VI R 52/20, margin no. 31). But how is this addressed in a cross-border context? Do German double tax treaties permit such inclusion if the taxpayer is resident in the other contracting state? The Federal Tax Court has now ruled on this matter again (file number VI R 3/24).

Dr Martin Weiss
| 5 min read | 10 Apr 2026

Cross-border aspects of the German trade tax for shipping companies

BFH-Insights

The German trade tax aims to assess the taxable entity – the business operation (“Gewerbebetrieb”) – based on its own earning capacity, without regard to the personal characteristics of the taxpayer or their personal relationship to the taxable entity. In the case of foreign-related aspects of the trade tax, the so-called “territoriality principle” is to be applied. For taxpayers subject to resident income or corporate taxation who operate a business within the meaning of Sect. 2 of the Trade Tax Act, this territoriality must therefore be “established,” inter alia, through the deduction provided for in Sect. 9 no. 3 of the Trade Tax Act. The fourth chamber of the Federal Tax Court has now ruled on the special case of internationally active shipping companies (file number IV R 30/23).

Dr Martin Weiss
| 7 min read | 07 Apr 2026

Wage taxation under the double tax treaties (DTT)

BFH-Insights

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.

Dr Martin Weiss
| 7 min read | 31 Mar 2026

Transitional issues in inheritance tax and constitutional law

BFH-Insights

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).

Dr Martin Weiss
| 7 min read | 30 Mar 2026

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

Supplementary taxes on income tax and their procedural peculiarities

BFH-Insights

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.

Dr Martin Weiss
| 5 min read | 13 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
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Dr Martin Weiss

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