German Federal Ministry of Finance publishes reorganisation tax decree

On 2 January 2025, just in time for the start of the new year 2025, the German Federal Ministry of Finance published the final circular on the application of the German Reorganisation Tax Act (so-called Reorganisation Tax Decree). After more than 13 years, the updated reorganisation tax decree replaces the previous reorganisation tax decree dated 11 November 2011.

With the revised version of the reorganisation tax decree, the tax authorities are taking into account, in particular, changes in legislation and case law that have been enacted in the meantime and are thus updating the decree in the traditional sense; there is no fundamental reform or change in administrative opinion as part of the update of the reorganisation tax decree. In the final version, requirements from the comments of the associations on the draft version of 11 October 2023 were taken into account or adjustments were made to the content.

The key points of the Reorganisation Tax Decree can be found (among other things) in the passages on cross-border and foreign reorganisations with regard to the comparability test, the factual and temporal requirements for the prerequisites of the partial operation, the mapping of hidden charges in reorganisation processes and the allocation of costs to the reorganisation. There are also important statements on the circumstances that may arise after a demerger or contribution. These include the rules on the so-called post-demerger lock-up period and the taxation of contribution gains. Last but not least: Following the so-called "tax group package" issued by the German Federal Fiscal Court (Bundesfinanzhof) in 2023, the German Federal Ministry of Finance has also addressed the consequences of transformations on a consolidated tax group for income tax purposes and has amended the corresponding marginal numbers in the decree.

In the opinion of the advisory community, the amendments are partly understandable in the light of the case law and legislative changes that have occurred in the meantime; in some cases, however, they are too short-sighted. This applies in particular to the rather 'unwieldy' provisions of Sections 4f and 5(7) of the German Income Tax Act (even outside reorganisation proceedings) on the transfer of liabilities with hidden charges and the new formation of tax groups following a reorganisation of the tax group parent.

VAT