German Annual Tax Act 2026: Relevant amendments in the Finance Committee’s recommendations

1. The allocation of domestic real estate property to a foreign permanent establishment does not trigger exit taxation (Entstrickung), provided that any future capital gain remains subject to domestic taxation without restriction (see section 4 para. 1 sentence 4 of the draft German Income Tax Act (EStG-E) and section 12 para. 1 sentence 2 of the draft German Corporate Income Tax Act (KStG-E)). This removes doubts on the tax treatment of the migration of property-owning companies that had arisen following the judgment of the German Federal Fiscal Court (BFH) of March 26, 2025 (case no. I R 5/24)—in accordance with the proposed application rules in all pending cases. 
2. The trade tax participation exemption (Schachtelprivileg) now applies in EU cases from a holding of 10 %, instead of the previous 15% (section 9 para. 7 sentence 3 of the draft German Trade Tax Act (GewStG-E)). This is a reaction to the judgment of the European Court of Justice (ECJ) of August 1, 2025 in “Banca Mediolanum” (case nos. C-92/24 to C-94/24) as well as the infringement proceedings currently pending against Germany and is also intended to apply to all pending cases. Unlike for corporate income tax purposes, however, an intra-year acquisition of a qualifying shareholding does not have retroactive effect to the beginning of the trade tax assessment period; in this respect, full alignment has not yet been achieved.
3. The administration of loans and loan collateral by lenders is exempt from Value Added Tax (VAT) (section 4 no. 8 lit. a) and g) of the draft Value Added Tax Act (UStG-E)). This removes a long-standing incomplete transposition of the relevant requirements of EU law and the associated competitive disadvantage for German lead arrangers. The amendment is due to come into force on January 1, 2027.

We expect the Finance Committee’s recommendations to be followed in the further legislative process.