BFH – Retroactive Gift Tax

The Federal Fiscal Court (BFH) ruled on November 20, 2025 (Ref. II R 7/23 that the retroactive application of § 13b para. 10 ErbStG to certain gifts may be constitutionally permissible – even if the relevant provision only came into effect on November 9, 2016. The decision thus applies to scenarios where the tax-relevant transaction was already completed before the announcement of the reform law, but the new regulation was backdated to an earlier date (July 1, 2016).

This is particularly noteworthy because the dispute involved a gift made on July 24, 2016 – significantly before November 9, 2016. The ruling highlights that when transferring business assets, tax planning should take into account possible, already foreseeable changes in the law.

Note: This article is for general information purposes and does not replace individual consultation in specific cases.

Gift of Business Assets: Initial Case

The procedure was based on a gift of business assets. The father transferred on July 24, 2016 a limited partnership share in a GmbH & Co. KG to his son.

Even at this point, a reform of the inheritance and gift tax was foreseeable: The Federal Constitutional Court had, with a decision dated December 17, 2014 (Ref. 1 BvL 21/12) declared parts of the then existing inheritance and gift tax law to be unconstitutional and obligated the legislator to implement a new regulation. A reform was initially to occur by June 30, 2016, but the legislative process was delayed; the new regulation was not announced until November 9, 2016.

Old or new law applicable?

The plaintiff argued that for the gift dated July 24, 2016, the law in effect until June 30, 2016 was applicable. The tax office disagreed and applied the new legal situation. Reason: The reform law was made retroactively applicable to July 1, 2016.

The plaintiff countered this with the argument, among others, that the retroactive effect violated the constitutional prohibition of retroactivity and infringed the protection of legitimate expectations..

BFH: Retroactive application can be permissible

The BFH did not support this argument. It decided that the retroactive application of § 13b para. 10 of the ErbStG to acquisitions from July 1, 2016 was permissible in this particular case.constitutionally permissible is.

The BFH made it clear that it is fundamentally a “genuine retroactive effect” because the new regulation refers to already concluded circumstances. A genuine retroactive effect is generally impermissible under constitutional law, but it can be permissible in exceptional cases – particularly when there is no legitimate expectation of the continuation of the old regulation.

Protection of legitimate expectations: When does legitimate expectation cease to exist?

According to case law, the decisive factor is whether those affected could legitimately rely on the existing legal situation at the time of their disposition.

The BFH denied a legitimate expectation in the case in dispute – mainly for the following reasons:

• Predictability of the reform: Due to the requirements set by the Federal Constitutional Court in 2014, taxpayers had to anticipate a reform.
• Specific legislative development: According to the BFH, the later retroactive effect was sufficiently recognizable to the public because there was already an adequately concrete legislative decision or decision-making situation before the donation.
• No mandatory binding to promulgation: The BFH emphasizes that not only the formal promulgation necessarily marks the decisive moment. Even an advanced, concrete legislative process can suffice to negate trust in the old situation.

Thus the decision shows: The protection of legitimate expectations can already be limited before the actual publication of a law if the new regulation is already concretely foreseeable was.

Significance for practice and planning in gifts

Even though real retroactive effects continue to be permissible only in exceptional cases, the judgment makes it clear: In the case of gifts – especially in the area of business assets – reforms and transitional regulations can have significant tax implications. Those transferring assets should, therefore, incorporate legislative developments and potential key dates into planning at an early stage.

Supplementary legal classification (for completeness)

For classification, it is important:

• The constitutional review of a retroactive effect is typically conducted against the standard of the rule of law principle (Art. 20 GG) and the derived principles of protection of legitimate expectations.
• In the case of “real retroactivity,” it is crucial whether there are exceptional reasons justifying the intervention (e.g., lack of worthy protection of trust, special public welfare reasons, foreseeable legal changes).
• Whether these prerequisites are present is always case-dependent and heavily depends on the specific temporal development of the legislative process as well as the respective disposition.

Contact

MTR Legal Lawyers advise on inheritance law.
Further information: https://www.mtrlegal.com/offices/germany/inheritance-law
Contact: https://www.mtrlegal.com/contact/

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