# BFH decision on retroactive gift tax explained Source: https://www.mtrlegal.com/en/bfh-decision-on-retroactive-gift-tax-explained/ · Language: en · Updated: 2026-07-26 --- 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/. ---