Germany: Failure to tax deemed capital gain on “hidden contribution” not a reduction in shareholder’s income; other tax developments
“Hidden contribution” did not increase taxable income of recipient company.
The Federal Tax Court in November 2025 held (I R 40/23) that a “hidden contribution” of shares in one limited liabiltiy company (GmbH) to another GmbH, which created a deemed capital gain to the contributing shareholder that was not reported by the shareholder or taxed, did not constitute a reduction in the shareholder’s income that would result in an increase in the taxable income of the recipient GmbH.
The recipient GmbH’s income would be increased only to the extent that the hidden contribution reduced the shareholder’s income (e.g., deducted by the shareholder as income-related expenses or business expenses), and a failure to tax does not constitute a reduction in income for that purpose.
Other recent tax developments in Germany include:
- Framework concept for new legal form for companies with tied assets
- Federal Tax Court (I R 37/22): Requirements for performance of a profit transfer agreement in a tax group (read TaxNewsFlash)
- Federal Tax Court (I R 9/23): Relationship between crediting of period of ownership and trade tax participation exemption
- Federal Tax Court (II R 24/22): Unification of shares for real estate transfer tax purposes in cases in which land-owning company acquires treasury shares
- Federal Ministry of Finance: New guidance on capitalization of fund establishment costs
- Draft guidance on principles of administration for definition and establishment of permanent establishments (PEs) in domestic and international tax law
Read an April 2026 report prepared by the KPMG member firm in Germany