Tax & Legal

According to a decision of the Supreme Tax Court, commercial property trading - which is harmful for the extended trade tax deduction - may be precluded under specific circumstances of the individual case if neither property sales nor preparatory measures are carried out within the five-year period and several property sales occur only in the sixth year.

When determining whether a corporation with a direct interest in the partnership owning real estate is considered a new shareholder within the meaning of Section 1 (2a) sentence 4 of the Real Estate Transfer Tax Act because at least 90% of the shares are transferred to new shareholders, only the shareholding in the corporation must be taken into account. In a most current judgment, the Supreme Tax Court held that a previous participation of the new shareholder of the corporation in the partnership owning the real estate is irrelevant in this respect.

In a most recent judgment, the Supreme Tax Court decided that it is not possible to demonstrate that a co-ownership in a plot of land valued at the proven lower fair market value is worth less than the calculated share of the fair market value of the entire plot.

In a recent judgment, the Supreme Tax Court laid down the criteria for a reversal of a purchase transaction to be recognized from a tax point of view. The decisive factor is whether the original acquisition is in fact completely reversed. If several purchasers have purchased a property as co-owners the withdrawal of just one purchaser from the sales contract cannot effectively eliminate their joint claim to transfer of ownership of the property.

A sale of five multi-family properties at the same time (“en bloc sale”) in the third year after acquisition is detrimental to the extended trade tax deduction as it violates the established three-property limit within a five-year period. This was decided by the Supreme Tax Court in a most recent judgment.

The payment for an eco-account connected to the property under state law is part of the consideration for the purchase of the property and must be included in the assessment basis for real estate transfer tax. This was decided by the Supreme Tax Court in a most recent judgment.

The German Supreme Tax Court (BFH) ruled on 20 May 2026, that the Baden-Württemberg state real property tax law is not unconstitutional, and affirmed the law’s provisions for real property valuation used in property tax calculations starting 1 January 2025.

In two similar decisions the Supreme Tax Court held that amounts charged for subsequent special requests for a property yet to be built are subject to real estate transfer tax if there is a legal relationship to the original property purchase agreement. These costs are then assessed in a subsequent separate tax notice. However, this does not apply to house connection costs if the property buyer has already agreed to assume these costs in the (original) property purchase agreement.

The Münster Tax Court has rejected an earlier decree of the Federal Ministry of Finance according to which entrepreneurs based abroad who own a rented property located in Germany are treated as being resident in Germany if the otherwise exempt rentals are subject to VAT by way of a waiver pursuant to Section 9 VAT Act.

Operating equipment is not part of the real estate for valuation purposes, its joint rental together with the real estate is harmful to the extended trade tax deduction pursuant to Section 9 No. 1 Sentence 2 Trade Tax Act. This also applies if the operating facility is permanently attached to the land or building. The only exception to this rule is if the joint-letting of the operating equipment permanently attached to the land or building is considered a secondary activity that does not affect the tax benefit, the Supreme Tax Court said in a most recent judgment.

In the case of the transfer of assets for partial consideration, the gain is from a private sale and must be allocated into a transaction for consideration and a gratuitous part based on the ratio of the consideration to the market value of the transferred asset. According to the Supreme Tax Court, this also applies if the consideration is below the initial (acquisition) costs.

The ECJ decided in a polish case that the taxable amount of a contribution of property by one company to the capital of a second company in exchange for shares in the latter must be determined based on the issue price of those shares if the parties mutually agreed to that effect.

If a property with more than 250 square meters of living space is rented, losses incurred as a result of the rental cannot necessarily be offset against taxable income of the taxpayer. This was decided by the Supreme Tax Court in a case of rentals within the family.

Under Section 13 (1) No. 4c of the Inheritance Tax and Gift Tax Act a family home may be transferred tax-free from a parent to a child upon the parent’s death if the parent lived there personally prior to death, the child moves in immediately after the death, and the living area does not exceed 200 square meters. According to the Supreme Tax Court, even a jointly used garden and associated pathways may be eligible for tax exemption.

According to a judgment of the Supreme Tax Court, the extended trade tax deduction pursuant to Section 9 No. 1 Sentence 2 of the Trade Tax Act is not available if a corporation has sold all of its real estate one day before the end of the assessment period (in the case of dispute: “at the beginning of 31 December”) because it was not exclusively and continuously active in real estate management during the whole assessment period.

The remuneration for waiving a right of usufruct to a private property is taxable as compensation in accordance with Section 24 No. 1 letter a of the Income Tax Act (ITA) if the owner of the usufruct right at the time of the waiver has actually leased the property and earned taxable income from rental and leasing. According to a recent decision of the Supreme Tax Court, this applies irrespective of whether the taxpayer receiving compensation for lost or foregone income was under legal, economic, or actual pressure at the time the agreement for waiver was concluded.

In a case of the sale of property belonging to the estate of an association of co-heirs the Supreme Tax Court held that the acquisition for consideration of a joint shareholding is not equivalent to the direct pro rata acquisition of the inherited assets themselves. With this most recent judgment the Supreme Tax Court abandons its previous case law on the matter.

The Finance Ministry of Lower Saxony commented on the value of consideration upon the sale of a property with solar or photovoltaic systems, namely if - when acquiring the real estate - the purchase price attributable to solar or photovoltaic systems should be included in the consideration for real estate transfer tax purposes.

In a most recent decision, the European Court of Justice held that the German inheritance tax regime that distinguishes between assets located in the domestic territory, in a Member State of the European Union or in the EEA or, alternatively, in a third country, is a restriction on the free movement of capital and cannot be justified by overriding reasons relating to the public interest.

In a most recent judgment, the Supreme Tax Court sees no taxable event within the meaning of Section 1 (2a) sentence 1 of the Real Estate Transfer Tax Act (regarding the taxation of a consolidation of shares) if a partnership holding an indirect interest in the real estate-owning partnership is interposed in the shareholder structure and where the shareholders themselves remain unchanged.