Germany: Draft bill for Annual Tax Act 2026 includes proposed Pillar Two, CbC reporting changes; other tax developments
Draft bill contains 32 articles covering a wide range of individual measures in various areas of tax law
The Ministry of Finance published a draft bill for the Annual Tax Act 2026, which is a “classic” annual tax act containing 32 articles covering a wide range of predominantly unrelated technical measures, including measures related to:
- Allocation of total purchase price for a developed property between the land and the building, which is depreciable
- Withholding tax
- Increased thresholds for exemption from withholding tax on payments (1) with respect to cross-border licensed rights (without application), and (2) for artistic, athletic, entertainment, or similar performances
- Exclusion from ability to obtain exemption from withholding tax for dividends on shares held by major foreign shareholders in collective custody or in special custody
- Authority to audit data on capital gains withholding tax
- Increase in interest rate for late payment and refund interest
- Implementation of Pillar Two side-by-side safe harbor and ultimate parent entity safe harbor for fiscal years beginning on or after December 31, 2025, and extension of transition period for country-by-country (CbC) reporting safe harbor to fiscal years beginning on or before December 31, 2027, and ending before July 1, 2029
- Introduction of penalty for failure to correct CbC reports
- Expansion of automatic exchange of information collected by digital platform operators (DAC7) to third countries, based on international agreements
The Cabinet is scheduled to review the bill on July 1, 2026. Thereafter, the government’s draft bill could be submitted to the parliamentary legislative process. Significant changes to the draft bill may still be made during the legislative process. The legislative process is expected to be completed toward the end of the year.
Other recent tax developments in Germany include:
- Ninth Act Amending the Tax Advisory Act and Other Tax Regulations adopted by lower and upper houses of Parliament (Bundestag and Bundesrat) (read TaxNewsFlash)
- Promulgation of the Act to Amend the MLI Implementation Act (read TaxNewsFlash)
- Federal Tax Court (I R 13/23): Relief from German withholding tax for U.S. S-corporation
- Federal Tax Court (VIII R 8/24): Dividends paid during liquidation period may benefit from parent-subsidiary directive
Read a July 2026 report prepared by the KPMG member firm in Germany