Germany: Draft bill for Annual Tax Act 2024 includes Pillar Two changes, other tax developments

Recent tax developments in Germany

Recent tax developments in Germany

Businesses have received an unofficial version of a draft bill for an Annual Tax Act 2024. The draft bill has not yet been published by the Federal Ministry of Finance (BMF), but according to reports the draft has been submitted by the BMF for early coordination within the government.

The draft bill contains a large number of predominantly technical measures, including proposals relating to:

  • Restructuring and reorganizations
    • Transfers between “sister partnerships”
    • Corporation tax clause (blocking clause for profit-neutral transfer if a corporation acquires an interest in the transferred asset)
    • Deferred taxation of hidden reserves in case of exit taxation (so-called balancing item method of Section 4g Income Tax Act)
    • Closing balance sheet of the transferring entity
    • Taxation of the shareholders of the transferring corporation
    • Trade tax liability
    • Withdrawals from a partnership in the tax retroactive period in case of contributions to a corporation
    • Retroactive taxation of “contribution gain II” in case of an exchange of shares
    • Tax-specific capital contribution surplus account
  • International taxation
    • Trade tax in the case of controlled foreign company (CFC) rules
    • Minimum Tax Act (implementation of the OECD July 2023 administrative guidance on the Pillar Two rules)
  • Procedural law
    • FATCA reporting obligations
    • Financial account information exchange
  • Further measures
    • Tax exemption for photovoltaic systems
    • Real estate transfer tax

Read a May 2024 report prepared by the KPMG member firm in Germany

Other recent tax developments in Germany include:

  • Following a transfer of the entire business of a corporation to a partnership, the trade tax loss carryforward previously generated by the corporation can be used by the absorbing partnership provided the business of the corporation consists solely of managing its interest in the absorbing partnership (German Federal Tax Court (BFH), decision IV R 26/21).
  • Interest earned by the taxpayer, a Belgian holding and management company, was not subject to tax under the old German controlled foreign corporation (CFC) rules (Lower Tax Court of Münster, decision 2 K 842/19 F).
  • The BMF published a so-called non-objection regulation to Section 12 of the Act to Combat Tax Havens (StAbwG).


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