Update of 3 November 2026: On 26 October 2026, the Institut der Wirtschaftsprüfer in Deutschland (IDW) issued an opinion on the government drafts of the 2026 Annual Tax Act and the 2027 Income Tax Reform Act. It supports several proposals by the Bundesrat, while also calling for more far-reaching provisions and, with regard to the Income Tax Reform Act, drawing particular attention to potential burdens on sole proprietorships and partnerships.
Bundesrat Issues Opinion on the 2026 Annual Tax Act
On 25 September 2026, the Bundesrat adopted an extensive opinion on the government draft of the 2026 Annual Tax Act. The draft had been referred to it on 14 August 2026 pursuant to Art. 76(2) GG (Grundgesetz, German Basic Law) and was registered as printed paper 447/26. It was deliberated at the 1068th sitting of the Bundesrat under agenda item 35.
The government draft had been preceded by a ministerial draft prepared by the Bundesministerium der Finanzen. According to the procedural overview, it was dated 19 May 2026; the deadline for comments by the associations involved expired on 12 June 2026.
According to the announcement by the Bundesministerium der Finanzen, the Bundeskabinett adopted the government draft on 12 August 2026. The legislative proposal is being considered by the Bundestag under printed paper 21/8283.
Current Status of the Legislative Process
First Reading and Referral to the Finance Committee
On 8 October 2026, the Bundestag considered the drafts of the 2026 Annual Tax Act and the 2027 Income Tax Reform Act at first reading. Both legislative proposals were subsequently referred to the competent committees. In each case, the Finance Committee has primary responsibility.
On 2 November 2026, the Finance Committee held a public hearing on the 2026 Annual Tax Act. The parliamentary process has therefore not yet been concluded. It remains uncertain which of the Bundesrat’s demands and the IDW’s recommendations will be included in the final version of the legislation.
A key component of the government draft concerns full interest accrual under § 233a AO (Abgabenordnung, German Fiscal Code). From 2027, the monthly interest rate for each full month is to rise from 0.15 per cent to 0.3 per cent. This results in an annual interest rate of 3.6 per cent.
Involvement of the Bundesrat Committees
Before the Bundesrat adopted its resolution, several committees had considered the government draft. In addition to the Finance Committee, which had primary responsibility, the Committee on Labour, Integration and Social Policy, the Committee on Agricultural Policy and Consumer Protection, the Economic Affairs Committee and the Committee on Urban Development, Housing and Regional Planning were involved.
The committee recommendations included individual tax provisions and information on specific risks faced by agricultural and forestry businesses. Statements from Baden-Württemberg, Niedersachsen and Nordrhein-Westfalen were also submitted during the plenary sitting.
IDW Supports Several Bundesrat Proposals
In its opinion on the government draft, the IDW calls for more favourable tax conditions for German businesses. In its assessment, this should facilitate investment and strengthen competitiveness.
It particularly supports the Bundesrat’s proposals concerning the following areas:
- Retained usufruct in connection with transfers of businesses, divisions and partnership interests is to be regulated more clearly.
- The scope for transfers at book value between sister partnerships is to be expanded.
- A capital contribution model is to be introduced and further developed for § 15a EStG (Einkommensteuergesetz, German Income Tax Act).
- Contingent purchase price components arising from earn-out arrangements are to be allocated to the year of disposal.
- The Federation and the Länder are to develop coordinated measures to simplify business tax law and reduce the administrative burden.
The IDW considers these regulatory approaches to contribute to greater legal certainty and to facilitate restructurings and business successions. It advocates addressing them during the ongoing legislative process.
Key Demands Concerning the 2026 Annual Tax Act
Capital Contribution Model under § 15a EStG
The Bundesrat is calling for a fundamental simplification of § 15a EStG. The amount of losses available for offset based on contributions is to be determined across financial years using a capital contribution model. Under this model, the amount actually contributed would be decisive because it reflects the limited partner’s economic exposure.
At the same time, the ability to offset losses on the basis of external liability within the meaning of § 171 HGB (Handelsgesetzbuch, German Commercial Code) is to be abolished. The demand therefore encompasses both the calculation of the amount of losses available for offset and the liability criteria previously taken into account.
The IDW supports the capital contribution model but recommends further refinement. Subsequent contributions should be capable of reclassifying existing losses to the extent that the contributions economically cover them. The IDW also calls for a fixed date for the first application of the new provision.
Low-Value Assets and Pool Items
According to the Bundesrat’s opinion, the threshold for the immediate depreciation of low-value assets pursuant to § 6(2) EStG is to be increased to EUR 1,200. At the same time, the pool item under § 6(2a) EStG is to be abolished.
This would restructure the depreciation system for assets with a low acquisition or production cost. The demand does not provide for pool depreciation to continue alongside the higher threshold for immediate depreciation.
Retained Usufruct in Business Transfers
The Bundesrat is calling for a new sentence 4 to be added to § 6(3) EStG. This would permit a business or division to be transferred subject to a retained usufruct while carrying forward its book values.
The demand relates to the judgment of the Bundesfinanzhof (BFH, German Federal Fiscal Court) of 29 January 2025 – X R 35/19 (case reference). The intended provision is to follow the tax authorities’ previous interpretation on this point.
The IDW supports the clarification for businesses and divisions but considers its scope insufficient. According to its opinion, partnership interests should be expressly included in the provision.
The IDW also calls for an unambiguous statutory provision governing ongoing taxation. If the acquirer obtains the status of a partner for tax purposes, the person retaining the usufruct should also be treated as a partner for tax purposes. This concept of dual partnership status for tax purposes would codify the tax authorities’ current interpretation and existing taxation practice. The IDW had already submitted a corresponding reform proposal concerning the deemed status as a partner for tax purposes to the Bundesministerium der Finanzen in a letter dated 10 July 2026.
Shorter Useful Life of Buildings
For depreciation purposes, a building’s useful life may in future be treated as shorter than the standard statutory useful life only subject to stricter requirements. Under § 7(4) sentence 2 EStG-E (draft German Income Tax Act), this would require the shorter useful life to have existed when the building was completed.
The amendment would affect taxpayers claiming an actual useful life that differs from the standard statutory useful life. Under the proposal, the circumstances at the time of completion would be decisive.
Transfers at Book Value Between Sister Partnerships
The Bundesrat is calling for § 6(5) sentence 3 no. 4 EStG to be amended in respect of asset transfers between sister partnerships. For transfers made after 31 December 2026, it would no longer be necessary for the same partners to hold identical percentage interests.
The provision is also to cover transfers in exchange for the grant or reduction of partnership rights. The proposed amendment therefore concerns both the ownership percentages and the consideration for the transfer.
The IDW supports this approach and advocates a systematic expansion of the provision. Transfers at book value should also be possible without identical ownership percentages and in exchange for the grant or reduction of partnership rights. In its assessment, this would logically complement the other transfer routes under § 6(5) sentence 3 EStG and avoid unnecessary intermediate steps in corporate restructurings. At the same time, it could prevent objectively unjustified VAT or gift tax consequences.
Earn-Out Payments in Business Disposals
The tax allocation of earn-out payments is also addressed in the Bundesrat’s opinion. In response to the judgment of the Bundesfinanzhof of 9 November 2023 – IV R 9/21 (case reference), the law is to stipulate that contingent purchase price components are attributed back to the assessment period in which the disposal occurred.
The provisions are to be incorporated into § 16(2) sentence 4 EStG-E and § 17(2) sentence 3a EStG-E. To protect legitimate expectations, they are to apply for the first time to taxable events under §§ 16 and 17 EStG occurring after 31 December 2026.
The IDW also welcomes the intended allocation to the year of disposal. This is to apply even if the condition determining the additional purchase price is not satisfied until a later period. In the IDW’s view, the provision would increase legal and planning certainty.
Advance Payments for Retained Profits
The repeal of § 37(3) sentence 5 EStG is intended to allow the preferential treatment of retained profits under § 34a EStG to be taken into account when advance payments are assessed. The demand therefore concerns the point in time from which the tax relief affects the calculation of advance payments.
Restriction on the Deduction of Losses under § 8c KStG
The Bundesrat is calling for a new sentence 9 to be added to § 8c(1) KStG (Körperschaftsteuergesetz, German Corporation Tax Act). In addition to current losses and loss carryforwards, particularly those under § 10d EStG, losses pursuant to § 2a EStG, § 15(4) EStG, § 15a EStG and § 15b EStG, as well as comparable loss items, are also to be covered by § 8c(1) sentence 1 KStG.
The intended clarification is to specify which loss items are to be included in the corporation tax restriction on the deduction of losses.
Minimum Trade Tax Assessment Rate
According to the Bundesrat’s demand, the minimum trade tax assessment rate is to be increased from 280 per cent to 300 per cent with effect from 1 January 2027. This would require an amendment to § 16(4) sentence 2 GewStG-E (draft Gewerbesteuergesetz, German Trade Tax Act).
The demand follows on from earlier deliberations. In committee recommendations concerning another legislative proposal, a further increase to 300 per cent had been considered appropriate in order to counter tax-motivated business relocations. The starting point was an initiative by the Hamburg Senate of 28 April 2026 against what is known as trade tax dumping.
It had previously been decided to increase the minimum assessment rate from 200 per cent to 280 per cent from the 2027 assessment period through the Neuntes Gesetz zur Änderung des Steuerberatungsgesetzes (Ninth Act Amending the Tax Consultancy Act). The demand concerning the 2026 Annual Tax Act builds on this amendment.
Further Content of the Bundesrat’s Opinion
Private Disposal Transactions Involving Divorce Properties
The Bundesrat is calling for properties involved in divorces to be exempted in future from taxation as private disposal transactions under § 23 EStG. The initiative originated in Baden-Württemberg.
The background is the case law of the Bundesfinanzhof, according to which allowing a divorced spouse to occupy a property does not constitute use for the owner’s own residential purposes. The Bundesrat refers to a potentially unavoidable situation that may arise from the separation year required under civil law. The initiative concerning divorce properties originated in the Land of Baden-Württemberg.
Electronic Submission of the Fixed Asset Register
Under § 5b(1) sentence 1 EStG, taxpayers required to prepare financial statements are to be obliged to submit their fixed asset register electronically from the 2028 financial year. The Bundesrat requests an examination of whether this obligation should also be extended to taxpayers using the cash-basis method of determining profits and to persons determining profits on the basis of standard rates.
In this respect, the Bundesrat is not calling for a definitive statutory amendment. Rather, the opinion concerns an examination of a possible expansion of the provision’s personal scope.
Further Requests for Review
In addition to specific proposed amendments, the Bundesrat’s opinion contains further requests for review. It is to be clarified whether the amendment to § 50c(2) sentence 6 EStG requires a corresponding amendment to § 50j EStG.
An additional request for review concerns § 39e(4) sentence 5 EStG and cases in which the employer submits a notification late. This likewise does not constitute a definitive demand for a statutory amendment, but rather identifies a potential need for regulation that remains to be examined.
VAT Group
For the planned new rules governing VAT groups in § 2c UStG-E (draft Umsatzsteuergesetz, German Value Added Tax Act), the government draft provides for a later commencement date than the ministerial draft. Under the government draft, the provision is to take effect on 1 January 2030. The ministerial draft had provided for 1 January 2029.
Structural Reforms and Reduction of the Administrative Burden
Beyond the individual provisions in the government draft, the Bundesrat considers structural changes to tax law necessary. A corresponding plenary motion submitted by the Land of Hessen secured a majority in the Bundesrat.
Together with the Länder, the Bundesministerium der Finanzen is to develop coordinated packages of measures and promptly prepare corresponding draft legislation. The main areas of focus are:
- Structural measures are to be developed in the area of business taxation.
- Tax law is to be simplified through standardisation, flat-rate rules and digitalisation.
- The administrative burden associated with taxation is to be reduced.
The IDW endorses the call for structural reforms. According to its opinion, the measures for unincorporated businesses should include, in particular, improvements to § 34a EStG and § 1a KStG.
The IDW also maintains the demands it made in relation to the ministerial draft of the 2026 Annual Tax Act to the extent that they were not, or were not fully, addressed in the government draft. In this respect, it refers to its letter of 12 June 2026.
Opinion on the 2027 Income Tax Reform Act
Government Draft and Parliamentary Process
The Bundeskabinett adopted the draft of a 2027 Income Tax Reform Act on 2 September 2026. The draft is being considered by the Bundestag under printed paper 21/8235. Following its first reading on 8 October 2026, this legislative proposal was also referred to the committees, with the Finance Committee having primary responsibility.
The tax relief is to take effect in two stages. The first stage is planned for 2027, while the full relief is to be achieved from 2028.
Basic Personal Allowance, Child Benefit and Child Allowances
The basic personal allowance is to increase to EUR 12,564 in 2027 and EUR 12,900 in 2028. At the same time, child benefit per child per month is to rise from EUR 259 to EUR 267 in 2027 and to EUR 272 in 2028.
The child allowances are to total EUR 10,056 in 2027 and EUR 10,236 in 2028. These amounts form part of the adjustments to the income tax rates and family-related benefits provided for in the government draft.
Tradesperson Services as a Counterfinancing Measure
As a counterfinancing measure, the government draft provides for a restriction of the tax credit for tradesperson services. The deductible proportion of expenses is to fall from 20 per cent to 15 per cent. At the same time, the maximum amount is to decrease from EUR 1,200 to EUR 900.
Financial Burden on Unincorporated Businesses
In its opinion, the IDW places particular emphasis on the effects of the 2027 Income Tax Reform Act on sole proprietorships and partnerships. In its assessment, income tax effectively operates as a business tax for these forms of business.
According to the IDW, a higher income tax burden may impair investment capacity, liquidity and the accumulation of equity. The Institute considers this to conflict with the political objective of strengthening private investment.
Fiscal Drag and Social Security Contributions
In the IDW’s assessment, the government draft does not fully offset fiscal drag. By contrast, the Bundesministerium der Finanzen takes the position that increasing the basic personal allowance and flattening the second progressive tax bracket counteract fiscal drag.
The IDW also refers to the significantly increased contribution assessment ceilings for health and pension insurance. As a result, affected insured persons would retain less net income for consumption, private provision, retirement provision and savings.
With regard to the Income Tax Reform Act, the IDW also maintains the demands it made in relation to the ministerial draft to the extent that the government draft did not adopt them, or did not adopt them in full. In this connection, reference is made to the IDW’s letter of 20 August 2026.
Frequently Asked Questions
Which Changes to the 2026 Annual Tax Act Does the IDW Support?
The IDW particularly supports the Bundesrat’s proposals on retained usufruct, transfers at book value between sister partnerships, the capital contribution model under § 15a EStG and the tax treatment of earn-out payments. In some cases, it calls for more extensive provisions, such as the express inclusion of partnership interests in the rules on retained usufruct.
What Is the IDW’s Position on the Capital Contribution Model?
The IDW supports basing the amount of losses available for offset on the amount actually contributed. Under its recommendation, subsequent contributions should be capable of reclassifying existing losses to the extent that they economically cover those losses. A fixed commencement date should also be specified.
How Are Earn-Out Payments to Be Treated for Tax Purposes?
Under the Bundesrat’s proposal, contingent purchase price components are to be allocated to the assessment period in which the disposal occurred, even if the relevant condition is not satisfied until later. The IDW supports this provision with a view to enhancing legal and planning certainty.
What Is the Bundesrat Demanding for Divorce Properties?
According to the Bundesrat’s demand, properties involved in divorces are in future to be exempted from taxation as private disposal transactions pursuant to § 23 EStG. This follows the case law of the Bundesfinanzhof concerning the occupation of a property by a divorced spouse.
Have the Proposed Amendments Already Been Finally Decided?
No. The Bundestag considered both government drafts for the first time on 8 October 2026 and referred them to the committees. The opinions of the Bundesrat and the IDW are significant for the subsequent deliberations but do not determine the final content of the legislation.
Tax-Law Significance of the Further Deliberations
The 2026 Annual Tax Act and the 2027 Income Tax Reform Act contain numerous provisions whose scope may be significant for businesses, investors and high-net-worth private individuals. The final wording, the respective commencement dates and potential transitional provisions may be particularly important. For questions concerning the tax-law consequences of the ongoing legislative process, MTR Legal Rechtsanwälte advises clients as part of its tax law advisory services.
Sources
- Deutscher Bundestag: Stellungnahme zum Regierungsentwurf des Jahressteuergesetzes 2026
- Bundesrat: Entwurf eines Jahressteuergesetzes 2026 – Beratungsvorgang 447/26
- Bundesministerium der Finanzen: Entwurf eines Einkommensteuerreformgesetzes 2027
- Bundesregierung: Im Kabinett Einkommensteuerreform beschlossen
