I. Introduction

The capital gain from the disposal of shares in a corporation (Kapitalgesellschaft) is considered income from business operations pursuant to Section 17 EStG if, during the previous five years, the taxpayer has directly or indirectly held at least 1% of the share capital of a corporation. The capital gain is calculated in accordance with section 17 para. 2 sentence 1 EStG and is determined by deducting both the acquisition costs of the shareholding and any disposal costs (Veräußerungskosten) from the disposal price. As disposal costs reduce the taxable capital gain, it is particularly relevant for taxpayers which costs are considered as disposal costs. The BFH recently had the opportunity to comment on this matter.

II. General explanations on disposal costs

The term disposal costs (Veräußerungskosten) appears multiple times in German tax law, especially in the German Income Tax Act. However, the term is not legally defined in statutory law. Referring to earlier case law, the BFH emphasises in its latest ruling that the term “disposal costs” should be interpreted uniformly in income tax law (Ertragsteuerrecht). Nevertheless, the BFH has so far failed to provide a uniform definition of the term at highest court level.
In previous decisions, the BFH decided that disposal costs are expenses (Aufwendungen) that are directly linked to a disposal, i.e. that they are economically caused by the act of disposal itself (BFH decision of 9 October 2013, ref. IX R 25/12, Federal Tax Gazette II 2014, 102, para. 10). In this decision, the ninth Senate of the BFH thus adopted a narrow interpretation of disposal costs, which includes, e.g., tax and legal advisory fees or notary costs incurred in preparation for a disposal.
In a different case, however, the first Senate of the BFH ruled that the term covers not only expenses directly related to a disposal, but also extends to those expenses that, according to the principle of causation (Veranlassungsprinzip), can be attributed to the disposal (BFH decision of 27 March 2013, ref. I R 14/12, BFH/NV 2013, 1768, para. 15); according to this decision, a broad interpretation of the term applies, and a mere causal connection would be sufficient.
The Income Tax Guidelines from the German Tax Authorities define disposal costs within the meaning of section 17 para. 2 sentence 1 of the EStG as all expenses caused by the disposal transaction itself (R 17(6) EStR). The tax authorities therefore also apply a broad interpretation of the term and do not demand an immediate and direct link to the disposal.

III. Recent ruling by the BFH

In light of the previous inconsistent case law, the BFH now had another opportunity to address the question of which expenses are to be regarded as disposal costs within the meaning of section 17 para. 2 sentence 1 EStG. The case in question concerned whether tax advisory fees incurred for calculating the capital gain as part of preparing the tax return fall under disposal costs according to Section 17 para. 2 sentence 1 EStG, and thus whether they can re-duce the taxable capital gain.
The case decided by the BFH concerned a married couple who were assessed jointly for tax purposes and who sold their 5.93% shareholding in a corporation held as private assets in 2021. They engaged a tax advisor to prepare their income tax return for that year. The advisor’s invoice separately listed the portion of the fee relating to the calculation of the capital gain from the disposal of the shares. This amount was claimed as disposal costs within the meaning of Section 17 para. 2 sentence 1 EStG. The tax office rejected the deduction. The appeal (Einspruch) against this decision was not successful. The Fiscal Court of Hesse (decision of 22 February 2024, ref. 10 K 1208/23) initially ruled that these tax advisory fees were directly caused by the disposal, as their triggering event was the act of disposal itself. Accordingly, the expenses were to be considered as reducing income when determining the taxable capital gain under Section 17 EStG.
The BFH did not follow this view, but instead decided that the tax advisory fees incurred in determining the capital gain did not constitute disposal costs within the meaning of Section 17 para 2 sentence 1 EStG and therefore could not be deducted from the capital gain. The BFH again pointed out that, although the term “disposal costs” (Veräußerungskosten) appears several times in tax law, it is not defined but must be interpreted uniformly. Thus, costs of disposal within the meaning of Section 17 para. 2 sentence 1 EStG are costs incurred as a result of the disposal.
The BFH further states that, when assessing whether expenses are attributable to a disposal, the decisive factor is whether, from an objective perspective, the expenses are triggered by the disposal itself and have a closer connection to the disposal than to ongoing income. This requires a consideration of all the circumstances of the specific case, weighing and evaluating the various factors that may have caused the expenses, in order to determine which factor is ultimately decisive. The BFH clarifies that, in its view, a direct and objective connection between the expense and the disposal is not required, and therefore the broader definition of the term remains applicable. Accordingly, the BFH considers an indirect causal link to be sufficient, provided that the disposal is the triggering event.
However, in the case at hand, the BFH concludes that the tax advisory fees in question were not triggered by the disposal itself. In the court’s view, these expenses are rather a consequence of the actual tax liability associated with the disposal, which led the married couple to engage a tax advisory in order to fulfil their tax return obligations. On this, somewhat formal, basis, the ninth Senate of the BFH denied the deductibility of the tax advisory fees and granted the tax authority’s revision of the previous court decision by the Fiscal Court of Hesse.

IV. Practical Implications

The ruling is noteworthy because, although the BFH interprets the term disposal costs broadly and does not consider a direct and objective link between the cost and the disposal necessary, the BFH still does not regard tax advisory fees for preparing the capital gain calculation relating to the disposal as disposal costs. Regarding the causal connection (“Veranlassungszusammenhang”) for the expenses, the BFH bases its assessment solely on the underlying tax liability resulting from the disposal under section 17 EStG. The disposal itself is not taken into account in this assessment, even though it is the event that gives rise to the tax liability in the first place.
The justification set out by the BFH in this case could also be relevant to other provisions that use the term disposal costs (“Veräußerungskosten”). This includes, for example, disposal costs in connection with income from capital assets (Section 20 para. 4, sentence 1 EStG), the disposal of a business (Section 16 para. 2 EStG), or, in the context of the participation exemption rule (“Schachtelprivileg”), the disposal of shareholdings as defined in Section 8b para. 2 of the German Corporate Income Tax Act (KStG). In practice, this means that a careful case-by-case assessment of deductible disposal costs will become increasingly important, especially since the judgment has been published in the Federal Tax Gazette (Bundessteuerblatt, BStBl. II 2026, 102) meaning that the tax authorities are bound to apply the decision generally and beyond the individual case.
It should also be considered whether this ruling calls into question the general deductibility of tax advisory fees incurred when determining taxable profits. Under section 4 para. 4 and sec-tion 9 para. 1 EStG, such expenses are only deductible as business or income-related expenses if there is at least an indirect causal link between the costs and the relevant income. At present, however, deductibility does not appear to be at risk, as the tax authorities allow tax advi-sory fees to be deducted as business or income-related expenses where and to the extent that they are incurred in determining taxable income (see Federal Ministry of Finance circular dated 21 December 2007, IV B 2 – S 2144/07/0002, Federal Tax Gazette II 2008, p. 256, item 4). It remains to be seen whether this practice will continue and that the BFH will not prevail with its stricter approach regarding the triggering event for tax advisory fees