Update of 19 October 2026: The Bundestag debated the government draft of the Annual Tax Act 2026 on 8 October 2026 in its first reading and, after a one-hour debate, referred it to the committees. The draft is listed as BT-Drucksache 21/8283 (Bundestag printed paper); in parallel, the draft of an Income Tax Reform Act was debated in its first reading. The Finance Committee has scheduled a public hearing on the Annual Tax Act 2026 for 2 November 2026.
The Federal Government has introduced the draft Annual Tax Act 2026 to the Bundestag. The government draft contains numerous individual provisions which, according to the Federal Government, are predominantly technical in nature and are not, or only partly, thematically connected. The highlighted changes include, in particular, the planned increase in interest on tax arrears and tax refunds.
Government draft of the Annual Tax Act 2026
The Federal Cabinet adopted the government draft of the Annual Tax Act 2026 on 12 August 2026. The draft was forwarded to the Bundesrat on 14 August 2026 pursuant to Art. 76 paragraph 2 GG (German Basic Law) and is listed there as Bundesratsdrucksache 447/26 (Bundesrat printed paper). The Federal Ministry of Finance is the lead ministry. According to the introductory text of the draft, the act requires consent, as the Bundestag is to adopt the law “with the consent of the Bundesrat”.
The Bundesrat issued its opinion on the draft at its 1068th session on 25 September 2026. The Federal Government responded on 30 September 2026 in a counter-statement and agreed to individual demands made by the Länder. Also on 30 September 2026, the government draft was forwarded to the Bundestag.
The Bundestag debated the draft on 8 October 2026 in its first reading and, after a one-hour debate, referred it to the committees.
Increase in interest on tax arrears and tax refunds
Interest rate to rise from 2027
A key point of the draft concerns the interest charged on additional tax assessments and tax refunds. Interest on tax arrears is levied on taxpayers where taxes have to be paid retrospectively. Since 2019, the interest rate has been 0.15 percent per month; this corresponds to an annual interest rate of 1.8 percent.
From 2027, the monthly interest rate is to be increased to 0.3 percent due to the significantly higher interest rate level since 2022. This results in an annual interest rate of 3.6 percent. The increase is to be incorporated into § 238 paragraph 1a AO (German Fiscal Code) and apply to interest periods from 1 January 2027.
Additional revenue of more than EUR 600 million is expected by 2031 from the planned increase in tax interest. This figure relates to the fiscal effect of the change in interest and does not replace the examination of the respective individual tax matter.
Parallel treatment for tax refunds
The proposed interest rate does not only concern interest on tax arrears. It is also intended to apply to refund interest received by taxpayers on tax refunds. This preserves the parallel treatment of interest on additional tax claims and tax refunds.
Under the Abgabenordnung (AO, German Fiscal Code), the interest period for interest on additional tax claims and tax refunds generally begins 15 months after the end of the calendar year in which the tax arose.
Further tax changes in the draft
Child allowances for residence in EU and EEA countries
Another proposed legislative amendment concerns children resident in another Member State of the European Union or in a state to which the Agreement on the European Economic Area applies. For these children, the full child allowances are to be granted in future when taxing the parents.
The amendment is based on a judgment of the Europäischer Gerichtshof (ECJ, Court of Justice of the European Union). The Court had described the reduction of family benefits and tax advantages for employees whose children reside in another Member State as a breach of EU law. Until now, the allowances could only be deducted to the extent that they were “necessary and appropriate” according to the circumstances in the children’s country of residence.
Changes for foreign major shareholders
The draft also contains provisions for foreign major shareholders holding interests of at least ten percent in German corporations. In these cases, changes are planned in order to be able to uncover potentially abusive arrangements.
According to the Federal Ministry of Finance, major shareholders with limited tax liability and shareholdings of at least ten percent are in future no longer to receive exemption certificates in advance. Instead, a refund application is to be filed after the relevant transaction so that potentially abusive arrangements can be reviewed retrospectively on a case-by-case basis.
Licence fees, small fees and electronic notices
An increase is also planned in the exemption threshold for waiving withholding tax on licence fees paid abroad. The exemption threshold under § 50c EStG (German Income Tax Act) is to rise from EUR 10,000 to EUR 100,000.
In addition, the exemption threshold for small fees for performances under § 50a paragraph 1 number 1 EStG is to be increased from EUR 250 to EUR 500 per performance. Income tax assessments and notices on objections are to be transmitted only electronically from 2027 if taxpayers have an ELSTER account. Express consent is no longer to be required in these cases.
The Bundesrat committees also recommended examining whether a de minimis threshold should be introduced for the reporting obligation under § 41c paragraph 4 sentence 1 EStG in cases of excessive wage tax refunds.
Research allowance and minimum tax
The Annual Tax Act 2026 also provides for changes to the research allowance. The maximum amount of the research allowance permitted under state aid law per company and research and development project is to be increased from EUR 15 million to EUR 25 million. In addition, a separate suspension of the limitation period for the assessment of the research allowance is to be introduced.
The draft also implements the so-called “Side-by-Side Approach” of the international agreement in the German Minimum Tax Act. In addition, an adjustment to the ordinance-making power is planned.
Real estate purchase price and first place of work
For the first time, the allocation of a total purchase price for developed real estate is to be regulated by statute. A new § 6f EStG-E (draft German Income Tax Act provision) is planned for this purpose. In addition, the relevant period for the first place of work is to be halved.
VAT fiscal unity
Another significant regulatory complex concerns VAT fiscal unity. Under the current legal situation, a fiscal unity exists pursuant to § 2 paragraph 2 number 2 UStG (German VAT Act) where, based on the overall picture of the actual circumstances, a legal entity is financially, economically and organisationally integrated into an enterprise. An option regarding the occurrence of the legal consequences of fiscal unity has not been provided for to date.
The government draft provides for a new rule in § 2c UStG. According to this, the legal consequences of fiscal unity are in future to arise only upon an express declaration. Under the government draft, the new rule is not to enter into force until 1 January 2030.
It is also to be clarified that, in line with the case law of the Europäischer Gerichtshof and the Bundesfinanzhof (BFH, Federal Fiscal Court), partnerships can also be controlled companies within a fiscal unity. The planned rule may therefore be relevant for corporate groups with VAT fiscal unity structures.
Expansion of international exchange of information
The exchange of information with foreign tax authorities regarding income generated via online platforms is to be expanded. Such information is already exchanged within the European Union. The Annual Tax Act 2026 is to extend this reporting obligation to providers established in third countries.
According to the Federal Ministry of Finance, the government draft not only responds to EU law and case law of the Europäischer Gerichtshof. It also takes into account case law of the Bundesverfassungsgericht (BVerfG, Federal Constitutional Court) and the Bundesfinanzhof.
Further points from the legislative procedure
In addition to the changes at the centre of attention, the draft contains further individual tax measures. These include in particular:
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the planned reform of VAT fiscal unity in § 2c UStG, which under the government draft is not to enter into force until 1 January 2030,
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the implementation of the BEPS “Side-by-Side Approach” in the German Minimum Tax Act,
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requests for review by the Bundesrat committees regarding the future tax-deductible treatment of business expenses and income-related expenses, where appropriate with exceptions for small amounts,
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information in the cover sheet of the government draft according to which the compliance burden for citizens will be reduced by 117,133 hours, while additional expenditure will arise at the Bundeszentralamt für Steuern (Federal Central Tax Office) and at the Informationstechnikzentrum Bund (Federal Information Technology Centre).
The Bundesrat has raised demands including the redrafting of § 15a EStG, the retained earnings tax relief and low-value assets. Among other things, the Federal Government is adopting the proposal to limit the tax-neutral share-for-share exchange under § 20 paragraph 4a sentence 1 EStG to shares held in custody accounts. In addition, analogous application of §§ 8c, 8d KStG (German Corporation Tax Act) is to be provided for in controlled foreign company taxation under § 10 paragraph 3 sentence 5 AStG-E (draft German Foreign Tax Act provision).
The government draft also has attached to it an opinion of the National Regulatory Control Council pursuant to § 6 paragraph 1 NKRG (German Act on the National Regulatory Control Council) as an annex. The permission envisaged in the ministerial draft to use personal data for AI systems of the tax administration is no longer included in the government draft. The ministerial draft also provided for electronic account garnishment with mandatory electronic mailboxes.
In principle, the Act is to enter into force on the day after promulgation. However, individual articles are to apply retroactively, including Article 1 with effect from 1 January 2020 and Article 28 with effect from 6 December 2024. The further course depends on the parliamentary procedure and the consent of the Bundesrat; changes or additions remain possible in the further legislative process.
Frequently asked questions
When are interest rates on tax arrears to be increased?
The increase in the interest rate to 0.3 percent per full month is to apply to interest periods from 1 January 2027. This corresponds to an annual interest rate of 3.6 percent.
What does this mean for those affected?
Taxpayers whose additional tax claims or tax refunds bear interest may be affected by the higher interest rate. Under the Abgabenordnung, the interest period generally begins 15 months after the end of the calendar year in which the tax arose.
Does the higher interest rate also apply to tax refunds?
Yes, the planned interest rate is to apply both to interest on tax arrears and to refund interest. Taxpayers will therefore also receive the planned higher interest rate on interest-bearing tax refunds.
Has the Annual Tax Act 2026 already been adopted?
No. The Bundestag debated the government draft on 8 October 2026 in its first reading and referred it to the committees. Changes or additions remain possible in the further parliamentary procedure, including the deliberations in the Finance Committee and the Bundesrat’s consideration of the draft.
Classification for companies, investors and private individuals
The Annual Tax Act 2026 comprises numerous changes that may have different tax implications for companies, investors and high-net-worth private individuals. In addition to the planned doubling of interest on tax arrears and refunds, the focus is particularly on international matters, electronic administrative procedures and the treatment of cross-border structures.
With the referral to the committees, the legislative procedure has entered a further consultation phase. For tax classification, it may therefore be crucial which rules remain unchanged in the further procedure and where the Bundestag or Bundesrat still make adjustments. MTR Legal Rechtsanwälte advises clients on tax law matters with a national and international dimension; further information can be found at legal advice in tax law.
