I. Introduction

On 18 October 2024, the German Bundestag passed the Annual Tax Act (Jahressteuergesetz) for 2024, in which it implemented European legal requirements and case law from the ECJ, BFH and BVerfG in particular. This mainly involved the implementation of thematically unrelated measures. The German Bundesrat gave its approval on 22 November 2024. It will be promulgated in the Federal Law Gazette before the end of the year.

II. Book value transfer between partnerships with identical shareholdings

The new provision in § 6 para. 5 sentence 3 no. 4 EStG (German Income Tax Act) is intended to enable the transfer of assets between partnerships with identical shareholdings at book value, in accordance with the requirements of the Federal Constitutional Court (decision of 28 November 2023, BvL 8/13).
According to the explanatory memorandum to the law, there is no identity of shareholding if a natural person or a corporation, association of persons or estate has a direct or indirect shareholding in only one of the two co-entrepreneurships under civil law or only economically, even if this is only in a fiduciary capacity. Classic 0% participations of a limited liability company as general partner (Komplementär-GmbH), on the other hand, are not relevant.
As the mandatory book value approach can also be to the detriment of the co-entrepreneurs in individual cases, the application of § 6 para. 5 sentence 3 no. 4 EStG can be waived for transfers before 12 January 2024 for reasons of protection of legitimate expectations if the co-entrepreneurs involved in both co-entrepreneurships jointly apply for this.

III. Childcare costs

Up to now, two thirds of childcare expenses, up to a maximum of EUR 4,000 per child per year, can be taken into account as special expenses. The limit of two thirds of expenses will be increased to 80 percent of expenses and the maximum amount to EUR 4,800.

IV. Tax-privileged employee participation (group clause)

With retroactive effect to the 2024 assessment period, the amendment to § 19a EStG in the form of the insertion of the so-called “group clause (Konzernklausel)” in § 19a I sentence 3 EStG also results in tax benefits for the transfer of shares in affiliated group companies within the meaning of § 18 AktG (German Stock Corporation Act) to employees. According to the previous legal situation, these tax benefits in the form of taxation subject to a condition precedent only applied to transferred shares for the company at which the employee to be given a shareholding is employed.
This change has particular implications for employee shareholdings in start-ups that use group structures. To ensure that only these and not large stock corporations benefit from the new regulation, transfers to employees are only tax-privileged if the thresholds of § 19a III EStG are not exceeded in relation to all group companies. In detail, this means that the companies may employ a maximum of 1000 employees and may not exceed an annual turnover of EUR 100 million or an annual balance sheet total of EUR 86 million. In addition, none of the group companies may have been founded more than 20 years ago.
The tax concession is structured in such a way that the shares issued as part of such an employee participation scheme are only taxed if a subsequent taxable event within the meaning of § 19a IV EStG (transfer of shares, change of employer or after 15 years) is relevant or occurs. This is intended to solve the so-called dry income problem, i.e. the problem of taxing a non-cash benefit without an actual cash inflow to the employee. The aim is to increase the attractiveness of employee incentives through the acquisition of shareholdings.
This increase in the attractiveness of employee participation programs is also flanked by the increase in the allowance for participation programs in accordance with § 3 no. 39 EStG from 360 to 2000 euros p.a. through the Future Financing Act of 2023, in which this group clause should originally have been adopted.

V. Joint ownership for private sales transactions

An amendment to § 23 I sentence 4 EStG regulates (prompted by a deviating BFH ruling) and clarifies, in the opinion of the legislator, that the acquisition and disposal of shares in joint ownership groups (and thus in particular of shares in communities of heirs) is treated in the same way as the acquisition and disposal of the assets belonging to the joint ownership group.

VI. Property tax assessment

In implementation of two decisions of the BFH (II B 78/23/II B 79/23), according to which the Valuation Act (Bewertungsgesetz – BewG) must be interpreted in a constitutional manner with regard to the prohibition of excessiveness to the effect that, under certain circumstances, taxpayers must be able to prove a lower value of their property than the property tax value determined by an assessment, the Annual Tax Act 2024 introduces a new provision implementing this case law in § 220 II BewG. According to this, taxpayers can prove a lower value than the assessed value of their property, whereby the burden of proof lies with the taxpayer. If the assessed value exceeds the proven lower value by at least 40 %, this lower proven value is to be used.
The necessary evidence for a lower property value can be provided by an expert opinion from an appraisal committee in accordance with §§ 192 ff. BauGB (German Building Act) or an expert, § 220 II sentence 3 BewG. In addition, a purchase price may also be used as evidence, provided that this was concluded in the ordinary course of business, within one year before or after the date of determination and if the relevant circumstances at the time of the conclusion of the purchase agreement are identical to those at the time of the determination, § 220 II sentence 4 BewG. However, proof of only individual lower valuation bases is not sufficient. This regulation applies from the day after the promulgation of the Annual Tax Act 2024 in the Federal Law Gazette.

VII. Extension of the settlement period for investment funds

Until the amendment by the Annual Tax Act 2024, the settlement period for investment funds under tax law was limited to five years after the calendar year in which the settlement began in accordance with § 17 I sentence 4 InvStG (German Investment Tax Act). This will now be doubled by the amendment to § 17 I sentence 4 InvStG and will then be ten years after the calendar year in which liquidation began.
In principle, distributions to investors are fully taxable. Within this settlement period, however, capital repayments of acquisition costs can be carried out in a tax-neutral manner. If payouts are made after the end of this settlement period, they are again treated in full as taxable income.
The background to the doubling of the liquidation period is that it was difficult to comply with in practice. This posed a problem for real estate funds in particular, as a real estate portfolio cannot be liquidated quickly in weak market phases. Real estate funds in particular also have to hold back cash reserves for possible additional claims in the long term in order to be able to settle any additional tax or civil law claims, which further delays liquidation.

VIII. Extension of the deferral provision regarding real estate in inheritance tax law

Often, the heir to a property can only pay the inheritance tax due on the inheritance by selling the inherited property. The deferral provision of § 28 III ErbStG was created precisely for this case, which has been extended in favor of taxpayers by the Annual Tax Act 2024.
Pursuant to § 28 III ErbStG, the tax burden arising from the inheritance can be deferred for up to ten years upon application, even interest-free in the event of inheritance. According to the previous regulation, a tax deferral could only be granted in cases where the property was either rented out for third-party residential purposes at the time of acquisition or, in the case of single-family houses and condominiums, is occupied by the heir himself after the acquisition. The case where a house used by the deceased is rented out to third parties after the inheritance or where the heir moves into an apartment in an apartment building not divided according to the WEG (German Condominium Act) was not covered by the previous deferral regulation.
The new version extends the scope of application to all cases in which property is used for residential purposes, irrespective of the type of property and irrespective of whether it is used for own or third-party residential purposes. This also includes the aforementioned procedures not previously covered, which represents a considerable relief for many taxpayers. Of course, this regulation also applies to gifts, but its main impact is on inheritances.

IX. Abolition of the loss set-off restriction for forward transactions

The Annual Tax Act also provides for the repeal of a recently introduced standard after some concerns were expressed about its constitutionality. Since the 2021 assessment period, losses from forward transactions (CFDs, options, futures, etc.) or bad debts could only be offset against gains from forward transactions or income from standstill premiums on the basis of § 20 VI sentence 5 EStG, and only up to an amount of EUR 20,000. Although losses that were not offset could be carried forward to subsequent assessment periods, they were also subject to the offsetting restrictions, in particular the limitation on amounts.
This restriction on loss offsetting is now to be lifted again by the Annual Tax Act 2024, which means that losses from forward transactions can once again be offset against all gains from investment income without restriction. In doing so, the legislator is responding to the enormous criticism, including from the BFH (case no. VIII R 11/24), of the constitutionality of the restriction on loss offsetting with regard to the principle of equality under Article 3 I GG (German Basic Law).
Of course, this change in the law affects the upcoming assessment periods, but also all cases that are still “open”. These are cases where an appeal or objection procedure is currently pending or where the tax assessment notice has been issued subject to review or provisionally. The new legal situation will also be taken into account for tax assessments that have not yet been made.