Germany: Further update on tax policy consequences from end of governing coalition, other tax developments

The German government on November 6, 2024, saw the breakup of its coalition, leading to the dismissal of Federal Finance Minister and two other federal ministers requesting dismissal.

The Chancellor announced plans to seek a vote of confidence in the lower house of Parliament (Bundestag) on December 16, 2024. If the vote fails, new elections are expected to be held on February 23, 2025, though these dates could change based on further negotiations.

Until the vote, the Chancellor intends to govern with a minority government, pushing for votes in the Bundestag on urgent bills, likely including the draft Tax Development Act which would implement various investment incentives such as:

• Reform of collective depreciation to raise the lower value limit for preferential assets, which can be combined in a collective item, to €800 and the upper value limit to €5,000, as well as shortening the depreciation period of the collective item to three years
• Continuation of declining balance depreciation for movable fixed assets acquired or manufactured from 2025 to 2028 and increase to 2.5 times the linear depreciation, up to a maximum of 25%
• Introduction of a special depreciation for fully electric and zero-emission vehicles over a period of six years starting at a rate of 40%
• Increase of the maximum assessment basis for purposes of research allowance to €12 million.

The following important tax bills also have yet to be passed by the Bundestag:

• Act on the Amendment of the Minimum Tax Act which would implement the OECD's new administrative guidelines on the global minimum tax
• Second Act on the Financing of Future-Securing Investments which aims to improve financing options for start-up companies
• Draft legislation that would provide various tax incentives for e-fuels-only motor vehicles
• Draft legislation that would implement the DAC8 directive relating to the EU-wide reporting standard and information exchange for transactions with cryptoassets

The passage of these bills will require opposition support, which remains uncertain.

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

Other recent tax developments in Germany include:

• The Federal Tax Court (BFH) opined on the relationship between a “switch over” clause in an income tax treaty and national law (July 3, 2024 decision – I R 4/21).
• The BFH opined on the trade tax deduction for a foreign permanent establishment (PE) (June 5, 2024 decision – I R 32/20).
• The European Commission referred Germany to the Court of Justice of the European Union (CJEU) for its tax treatment of reinvested capital gains from the sale of property located in Germany.