Here you can find the latest news and developments in international tax law.
Updates on International Tax
Federal Fiscal Court confirms withholding tax relief for U.S. S corporations
In its judgment of 11 March 2026 (I R 13/23), the German Federal Fiscal Court confirmed that a U.S. S corporation may claim treaty relief for dividends received from a German subsidiary. Depending on the ownership structure and the further treaty requirements, German withholding tax may be reduced to 5% under Article 10 of the Germany–U.S. tax treaty or fully relieved at 0% for qualifying parent-subsidiary dividends. This applies despite the different tax classification: the S corporation is treated as fiscally transparent in the United States, while Germany classifies it as a corporation.
The key point is that the dividends are attributed as income to U.S.-resident shareholders. The rule applicable in the case, former section 50d(1) sentence 11 of the German Income Tax Act – now reflected in section 50d(11a) – does not, according to the court, change the substantive treaty entitlement. For hybrid entities, it only determines who may claim an existing refund from the German Federal Central Tax Office. In the case of an S corporation, this will generally be the U.S. shareholders; however, an application filed by the S corporation may be sufficient if it is clear that it is made on behalf of the shareholders.
From a practical perspective, the decision strengthens the position of hybrid U.S. structures with German subsidiaries. However, refund and exemption applications should be carefully documented, in particular with regard to the ownership percentage, holding period, U.S. tax attribution and the limitation-on-benefits rules under the Germany–U.S. tax treaty. In simple terms, these rules are intended to prevent treaty benefits from being used without a sufficient personal or economic connection to Germany or the United States. Special fact patterns, such as a possible U.S. treatment of the German subsidiary as a disregarded entity, still require separate analysis.
Updates on Doing Business in Ukraine
New Germany–Ukraine tax treaty: review payment flows, employee assignments and treaty benefit eligibility
Germany and Ukraine signed a new double tax treaty in Paris on 19 May 2026. Once effective, it will replace the 1995 treaty and modernise the tax framework for cross-border investment, financing, licensing and business activities. The new treaty is not yet in force; it must first be ratified by both countries and the instruments of ratification must be exchanged. In general terms, it will apply from 1 January of the year following the year in which it enters into force.
Cross-border payments: The new treaty limits source-state taxation of dividends, interest and royalties. Qualifying corporate dividends may still benefit from a reduced 5% rate where the recipient company directly holds at least 20% of the capital of the distributing company throughout a 365-day period including the dividend payment date. In other cases, dividends are generally subject to a maximum rate of 15%. Interest and royalties are generally limited to 5%, with exemptions available for certain government-backed financing arrangements.
Employee assignments: For cross-border employee assignments, the key practical change is the rolling 183-day test. For employment income relating to duties performed in the other state, the work state may in particular obtain taxing rights if the employee is physically present there for more than 183 days in a relevant twelve-month period, if an employer in the treaty sense — potentially including an economic employer — is resident there, or if the remuneration is borne by a permanent establishment of the employer in that state. Compared with the current calendar-year approach, assignments spanning year-end may therefore become tax-relevant more quickly.
Anti-abuse rules: Treaty benefits will also be subject to explicit anti-abuse restrictions. In addition to a principal purpose test, under which a treaty benefit may be denied if obtaining that benefit was one of the principal purposes of an arrangement or transaction, the treaty includes a rule for low-taxed permanent establishments in third jurisdictions. It does not contain a comprehensive limitation-on-benefits clause with formal claimant tests. Conceptually, these provisions mainly reflect OECD/BEPS and MLI approaches, supplemented by elements familiar from German treaty practice, such as the express reservation for domestic anti-abuse and controlled foreign company rules.
The treaty is also intended to improve cooperation between the tax authorities, in particular through expanded exchange of information and a basis for assistance in the collection of taxes. Businesses with German-Ukrainian structures should therefore review payment flows, financing and licensing arrangements, treaty benefit eligibility and cross-border employee assignments in good time.
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Germany to gradually reduce corporate income tax by 2032
With the “Act for an Immediate Tax Investment Programme to Strengthen Germany as a Business Location”, Germany has set in motion a significant corporate tax reform. From the 2028 assessment period onwards, the corporate income tax rate will be reduced in stages from its current level of 15% to 10% as from 2032. The Act was published in the Federal Law Gazette in July 2025 and has therefore already been enacted; however, the tax relief will only take effect from 2028.
Including the solidarity surcharge, the combined burden from corporate income tax and solidarity surcharge will fall from currently 15.825% to 10.55% as from 2032. Assuming a municipal trade tax multiplier of 438%, the current trade tax burden amounts to approximately 15.3%. On this basis, the aggregate income tax burden of a corporation would decrease, on an indicative basis, from currently around 31.1% to approximately 25.9% as from 2032.
For companies and investors, the reform provides greater planning certainty and noticeably improves Germany’s tax framework as a business location. The gradual reduction is particularly relevant for investment decisions, site selection and M&A transactions, as future tax rates may have a direct impact on company valuations and financial models. While Germany will still not become a classic low-tax jurisdiction, it will position itself more competitively from a tax perspective than it has to date.
Planned increase in the minimum municipal trade tax multiplier: stronger focus on substance rather than location going forward
The German Bundestag has adopted an increase in the statutory minimum municipal trade tax multiplier from currently 200% to 280% going forward. The rule is intended to apply for the first time to the 2027 collection period. However, the German Bundesrat did not approve the legislation on 8 May 2026, meaning that the amendment has not yet definitively entered into force.
The aim of the reform is to curb very low municipal trade tax multipliers in individual municipalities and to make purely tax-driven relocations of registered offices less attractive. Only a small number of municipalities would be affected; as at 31 December 2024, 43 municipalities had a multiplier below 280%. Major business locations would generally not be affected, as their multipliers are already significantly above this threshold.
For companies and investors, the key point is this: a low municipal trade tax multiplier only results in a genuine tax benefit if the trade tax base amount is actually allocated to that municipality. If a company maintains permanent establishments in several municipalities, the trade tax base amount is generally apportioned; as a rule, the relevant criterion is the ratio of wages and salaries attributable to the respective permanent establishments.
A mere registered office or brass-plate address in a low-tax municipality is therefore generally not sufficient. As a rule, a tax benefit only arises if there is also a genuine permanent establishment with personnel, functions and economic activity in that municipality. For investors, this means that purely location-based municipal trade tax arbitrage is becoming less important; substance-based structuring, the allocation of functions and robust operational implementation remain decisive.
Saarland Tax Court: business reasons may be relevant in intra-group financing arrangements
In its judgment of 25 September 2024, case no. 1 K 1258/18, with an appeal currently pending before the German Federal Fiscal Court under case no. IV R 22/24, formerly I R 23/24, the Saarland Tax Court held that intra-group financing arrangements that are not at arm’s length do not necessarily give rise in every case to an income adjustment under section 1 of the German Foreign Tax Act. In the case at hand, a German limited partnership had granted interest-free and unsecured loans to its foreign subsidiaries, which operated as contract manufacturers. The tax authorities considered the terms not to be at arm’s length and assessed deemed interest income.
The Tax Court confirmed that interest-free and unsecured loans are, in principle, not consistent with the arm’s length principle and that mere group support does not replace arm’s length collateral. Referring to the CJEU’s “Hornbach-Baumarkt” judgment, however, the court recognised that plausible commercial self-interests of the parent company may preclude an adjustment. The decisive factor was that the financing served to safeguard the parent company’s production and supply structure as well as its own competitiveness.
The judgment is particularly relevant for principal and contract manufacturing structures. It shows that intra-group financing arrangements with no or low interest should not be adjusted automatically where sound non-tax reasons exist and are properly documented. At the same time, it remains important to note that commercial reasons do not eliminate the non-arm’s length nature of the terms; they may merely prevent a tax adjustment. Until the Federal Fiscal Court has ruled on the matter, comparable cases should therefore be carefully reviewed, documented and kept procedurally open.
VAT in holding and VAT group structures: clear rules, high practical relevance
VAT remains a significant cost and risk factor in international holding and M&A structures.
In its judgment of 15 February 2023, XI R 24/22, the German Federal Fiscal Court clarified that a holding company cannot simply deduct input VAT merely because it holds shareholdings; the decisive question is whether the costs are connected with its own supplies for consideration to its subsidiaries.
By contrast, if services are passed on to subsidiaries free of charge or without a clear contractual basis, the tax authorities may deny the connection with the holding company’s own economic activity. In that case, there is a risk that input VAT recovery will be denied.
The Federal Fiscal Court’s decision of 10 January 2024, XI B 13/22, is positive from a practical perspective: a holding company may factor its own costs into the consideration charged for services to subsidiaries without thereby jeopardising its VAT-taxable activity.
There have also been important clarifications regarding VAT groups. The background to the proceedings was the question whether supplies between companies forming part of a VAT group – for example IT, management or administrative services – must be treated as supplies subject to VAT. In its judgment of 29 August 2024, V R 14/24, the Federal Fiscal Court confirmed that such intra-VAT-group supplies continue not to be subject to VAT because the controlling company and the controlled companies are treated as a single taxable person for VAT purposes. This applies even if the VAT owed or paid by the recipient of those services may not be deducted as input VAT. Without this treatment, intra-group services could in principle have been treated as taxable supplies between legally independent companies.
The Federal Ministry of Finance adopted this approach in its letter of 1 April 2026.
For international corporate groups, this means that holding and VAT group structures remain attractive, but they must be implemented properly from a contractual, commercial and documentary perspective.
Relocation to Switzerland: Federal Ministry of Finance clarifies deferral of exit taxation for legacy cases
In its letter dated 2 June 2025, the German Federal Ministry of Finance clarified the consequences of the CJEU’s case law in “Wächtler” and of the Federal Fiscal Court’s judgment of 6 September 2023 on exit taxation in cases involving Switzerland. For certain legacy cases, income tax assessed in connection with the former version of section 6 of the German Foreign Tax Act may, upon application, be deferred for an indefinite period and free of interest. This particularly covers cases in which, before 1 January 2022, an exit event within the meaning of section 6 para. 1 sentence 1 or section 6 para. 1 sentence 2 no. 2 of the former version of the German Foreign Tax Act occurred and the principle of equal treatment under the EU–Switzerland Agreement on the Free Movement of Persons must be observed.
This is particularly relevant for individuals who held shares in corporations and whose participation had met the threshold of at least 1% under section 17 of the German Income Tax Act within the preceding five years. The Federal Fiscal Court had held that, in qualifying Switzerland cases, exit tax may be assessed, but its collection must be deferred free of interest in the collection procedure. The focus is therefore not on the tax assessment itself, but on avoiding an immediate liquidity outflow.
Amounts already paid or discharged by set-off may also have to be reviewed again under certain conditions. The Federal Ministry of Finance letter provides for deferral even where the tax claim has already been satisfied; however, this is excluded if the limitation period for collection has expired at the time the application is filed. Earlier payments, set-offs, deferral arrangements and subsequent transactions relating to the shareholding should therefore be analysed carefully on a case-by-case basis.
However, the deferral is not a waiver of tax. It is generally granted only upon application, usually against the provision of security, and remains revocable. Particular attention should be paid to notification obligations, the annual confirmation to the competent tax office and potential grounds for revocation, for example share transfers, certain distributions or repayments of capital contributions.
For affected Switzerland cases predating 2022, a timely tax review is therefore recommended. In appropriate cases, an application for indefinite and interest-free deferral may significantly reduce the liquidity burden and may make earlier payments or set-offs relevant again in the collection procedure.
CFC taxation / switch-over clause: Federal Fiscal Court limits application in the case of foreign partnerships
In its judgment of 8 April 2025, IX R 32/23, the German Federal Fiscal Court held that the so-called switch-over clause in section 20 para. 2 of the German Foreign Tax Act applies only to a limited extent in the case of interests in foreign partnerships. Accordingly, a switch from the treaty exemption method to the credit method generally only comes into consideration if the German taxpayer holds a majority interest in the partnership that gives rise to a foreign permanent establishment attributable to that taxpayer. A mere minority interest is not sufficient.
The decision is particularly relevant for internationally active companies and partners who derive low-taxed passive income through foreign partnerships or permanent establishments. Section 20 para. 2 of the German Foreign Tax Act is intended to prevent the CFC rules from being circumvented by interposing a foreign permanent establishment instead of a foreign corporation. The Federal Fiscal Court has now clarified that this anti-abuse rule must not extend beyond the scope of the CFC rules themselves, which are generally based on control.
The decision is also significant in practice because the tax authorities now intend to apply the Federal Fiscal Court’s case law generally. Existing structures involving foreign partnerships, permanent establishments and income exempt under double tax treaties should therefore be reviewed, particularly in cases in which the tax authorities have previously assumed a switch to the credit method solely on the basis of low-taxed passive income.
In addition, section 20 para. 2 of the German Foreign Tax Act remains under scrutiny from an EU law perspective: by order dated 3 June 2025, IX R 39/21, the Federal Fiscal Court referred to the CJEU the question whether the switch-over clause infringes the freedom of establishment where the taxpayer is not given the opportunity to demonstrate genuine economic activity.
Federal Ministry of Finance strengthens evidentiary function of employer certificates in secondment cases
In its letter dated 19 December 2025, the German Federal Ministry of Finance made targeted updates to its administrative guidance on the tax treatment of employment income under double tax treaties. The focus is on how the assumption of costs between the assigning and the host company can be evidenced in the context of intra-group secondments.
The decisive factor is not the personal interest of the seconded employee, but the interests of the companies involved. The key questions are whether the employee is integrated into the host company and whether the host company economically bears the remuneration costs in its own business interest, or would have had to bear them under the arm’s length principle.
The employer certificate on the assumption of costs is of particular importance in this context. According to the administrative guidance, it has indicative evidentiary value; the certified cost allocation is rebuttably presumed to be arm’s length. As a result, a comprehensive review of the companies’ business interests can generally be dispensed with in the employee’s income tax assessment procedure.
For companies, it is important that not only the employee’s ongoing salary is relevant. Payroll-related ancillary costs, bonuses, benefits in kind, taxes assumed by the employer, advisory costs and payroll administration costs may also need to be included in the analysis. An actual recharge is a strong indicator, but not the only relevant criterion; nor is an arbitrary or non-arm’s length cost allocation sufficient.
The update applies from 1 January 2025 and may, upon application, also be applied in open cases. Companies should therefore review secondment agreements, cost allocations, transfer pricing documentation and wage tax processes for consistency. For employees, the certificate may facilitate evidence of the tax allocation of employment income, particularly in the income tax assessment procedure.
Withholding tax relief: Federal Central Tax Office provides targeted simplifications for the review of international holding structures
In 2025, the German Federal Central Tax Office published a new guidance note and an updated questionnaire on entitlement to relief under section 50d para. 3 of the German Income Tax Act. This particularly affects exemption and refund applications relating to German withholding tax on investment income. For international holding structures, this is highly relevant in practice because the Federal Central Tax Office has relaxed its previously very strict approach in certain respects.
Under the so-called look-through approach, it will no longer be mandatory for indirect shareholders to be able to claim their hypothetical entitlement to relief on exactly the same legal basis. In addition, asset-managing activities may, under certain conditions, also be recognised as genuine economic activity. The stock exchange clause will also be interpreted in a more practice-oriented manner in multi-tier shareholding structures.
However, these simplifications are not a carte blanche: section 50d para. 3 of the German Income Tax Act remains a sharp anti-treaty-shopping instrument. Substance, commercial rationale, genuine activity and documentation remain decisive. For investors, this means that the prospects of obtaining withholding tax relief are improving – but only for properly structured and robustly documented holding models.
Pillar II: Federal Central Tax Office accepts minimum tax reports
Since 28 April 2026, minimum tax reports, i.e. GloBE Information Returns, can be submitted electronically to the German Federal Central Tax Office. Filing is possible via the DIP bulk data interface or via the Federal Central Tax Office’s online portal using a bulk XML upload.
The minimum tax report must be distinguished from the minimum tax return. The report must generally be submitted to the Federal Central Tax Office and contains the information relevant for global minimum taxation. By contrast, the minimum tax return must be filed electronically with the competent tax office as a separate self-assessment tax return; in the case of a minimum tax group, the competent tax office is generally the tax office of the group parent.
Substantively, the two obligations are closely linked. The minimum tax return is largely based on the data contained in the minimum tax report, but remains a separate return in which the minimum tax itself must be calculated. Companies should therefore not prepare the report and the return in isolation, but should treat them as one integrated compliance process.
For corporate groups with a calendar-year financial year, the first deadline is particularly relevant: the minimum tax report for financial year 2024 must generally be submitted to the Federal Central Tax Office by 30 June 2026. The minimum tax return must also be factored into this deadline planning, as its filing deadline does not expire before the deadline for the minimum tax report. Any minimum tax due is generally payable one month after the minimum tax return has been filed.
In practice, the key task now is to coordinate the data basis, calculation methodology, technical filing process, responsibilities and internal approval procedures in good time.
Pillar Two: OECD publishes relief measures for the exchange of the Minimum Tax Report
On 18 May 2026, the OECD published relief measures relating to the central filing and international exchange of the Minimum Tax Report. The German Federal Central Tax Office (Bundeszentralamt für Steuern – BZSt) provided information on this in its Pillar 2 Newsletter 01/2026 of 18 May 2026.
The relief measures concern the Minimum Tax Report, internationally referred to as the GloBE Information Return or GIR. For multinational enterprise groups whose first fiscal year in scope ends on 31 December 2024, the GIR must generally be filed by 30 June 2026.
Under the international framework, the GIR is intended to be filed centrally in one jurisdiction and subsequently exchanged between the relevant tax administrations. For the first year, 2024, the OECD relief measures now published are intended to prevent groups from having to file multiple local GIRs or from being exposed to penalties as a result of exchange mechanisms not yet being fully implemented.
However, the relief measures do not apply automatically in every case. They remain subject to the applicable domestic law of the relevant jurisdiction. Groups with foreign constituent entities should therefore continue to assess whether individual jurisdictions impose their own local requirements or apply the relief measures only on a limited basis.
Where Germany is the central filing jurisdiction, the GIR must be submitted electronically to the BZSt. Two submission channels are currently available for this purpose: filing via the BZSt online portal and transmission via the BZSt bulk data interface.
The GIR must be distinguished from the German Minimum Tax Return. The latter must be filed separately and electronically with the competent tax office; in the case of a minimum tax group, this will generally be the tax office responsible for the group parent. In substance, the Minimum Tax Return is largely based on the information contained in the GIR.
Separately, jurisdictions that have introduced their own Qualified Domestic Minimum Top-up Tax (QDMTT) may impose additional local compliance obligations, such as registration, notification, return-filing or payment obligations. The central filing of the GIR does not automatically replace such obligations.
For practical purposes, this means that the OECD relief measures may significantly simplify the initial GIR filing process. International groups should nevertheless review whether local obligations apply in addition to the central GIR filing requirement, particularly in jurisdictions with their own QDMTT or with only limited application of the transitional relief measures.
German groups with activities in France: caution regarding the 15% corporate income tax rate
France has clarified the reduced corporate income tax rate of 15% for corporate groups. According to a publication by the French tax authorities dated 14 April 2026, in the case of companies belonging to a group, the EUR 10 million turnover threshold is determined not only by reference to the turnover of the French company, but by reference to the turnover of the entire group. The 15% rate therefore does not automatically apply to a small French subsidiary of a larger German company.
The clarification is based on a decision of the Conseil d’État dated 13 March 2025. Companies that incorrectly applied the reduced rate for 2023 or 2024 may make a correction by 20 May 2026; provided the correction is made on time, no penalties or late-payment interest should be imposed. German corporate groups with activities in France should therefore review existing and planned structures at short notice.