New tax laws – What does the Federal Council say about them?

The Federal Council comments on the government drafts of an Annual Tax Act 2024 and a Tax Development Act.

Frankfurt am Main

October 16, 2024

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Statements by the Federal Council and responses by the Federal Government on the JStG 2024 and the SteFeG

On September 27, 2024, the Federal Council adopted its statements on the government drafts of an Annual Tax Act 2024 (JStG 2024) and a Tax Development Act (SteFeG). These statements have now been published, along with the respective counterstatements by the Federal Government. Typically, the Federal Council's proposals, which the Federal Government unconditionally approves in its counterstatement, are incorporated into the law in the further course of the legislative process. However, such proposals relate exclusively to the JStG 2024. However, the Federal Government did not approve any of the Federal Council's proposals regarding the SteFeG—except for one editorial change.

The proposals for the JStG 2024, which the Federal Government has approved, are as follows:

• In its judgment of September 26, 2023, file number IX R 13/22, the Federal Fiscal Court did not classify the acquisition of a share in a community of heirs for consideration as a proportional acquisition of real estate belonging to the joint ownership of a community of heirs, since Section 23, Paragraph 1, Sentence 4 of the Income Tax Act only covers participations in partnerships. Therefore, the words "or joint ownership" should be inserted after the word "partnership" in Section 23, Paragraph 1, Sentence 4.

  
  

• In its judgment of July 15, 2021, case number IV R 36/18, the Federal Fiscal Court commented on the so-called corporate tax clause of Section 6, Paragraph 5, Sentence 6 of the Income Tax Act. According to this clause, the tax-damaging change in status only occurs when the hidden reserves are attributable to a corporate tax entity for the first time. Therefore, the change in attribution from one corporate tax entity to another does not constitute a violation of the blocking period. According to a new Section 6, Paragraph 5 Sentence 7 of the Income Tax Act should therefore also record this case as a violation of the blocking period.

  
  

• According to the tax authorities, this constitutes capital gains if portfolio commissions, administrative fees, or other expenses are reimbursed by the debtor of the capital gains or by a third party (Federal Ministry of Finance of May 19, 2022). The Federal Fiscal Court (Bundesfinanzhof) has contradicted this view (October 24, 2023 – case number VIII R 8/20). The administration's view should therefore be enshrined in law in Section 20 Paragraph 3 of the Income Tax Act.

  
  

• An amendment to Section 50 Paragraph 2 of the Income Tax Act is intended to implement the ECJ ruling of May 30, 2024 – file number C-627/22. In derogation from the previous regulation, the application-based assessment pursuant to Section 50 Paragraph 2 Sentence 2 Number 4 Letter b of the Income Tax Act will also be available to limited taxpayers with EU or EEA citizenship who have their residence or habitual abode in Switzerland, and to Swiss citizens who have their residence or habitual abode in the EU or Switzerland.

  
  

• The legal obligation to transmit the so-called e-balance sheet in Section 5b The Income Tax Act currently only refers to the electronic balance sheet as such and not to the underlying account statements, the list of fixed assets, and the lists pursuant to Section 5 Paragraph 1 Sentence 2 of the Income Tax Act and Section 5a Paragraph 4 of the Income Tax Act. These statements and lists will be included in the submission requirement in the future.

  
  

• In the future, the prerequisite for deducting maintenance payments as extraordinary expenses under Section 33a of the Income Tax Act will be that the payment has been made by transfer to the account of the person being supported. The new regulation is intended to make a significant contribution to improving tax enforcement and reducing bureaucracy. Likewise, the prerequisite for claiming tax reductions under Section 35a Paragraphs 2 and 3 of the Income Tax Act will be that the taxpayer has received an invoice and the payment has been made to the account of the service provider.

  
  

• The trade tax allowance for legal entities under public law of EUR 5,000 is to be increased to EUR 7,500, as it was last increased in 2009. However, the fact that the allowance of EUR 24,500 applicable to sole proprietorships and partnerships has not been adjusted for over half a century does not seem to bother the Federal Council.

  
  

• Section 29, paragraph 6, sentence 2 of the Corporate Income Tax Act is to be repealed. This will eliminate the procedure for separately determining the balance of contributions not made into the nominal capital of a transferring corporation, thus achieving synchronization with the future elimination of the initial determination of the tax contribution account in cases of conversion to a new company (see Section 27, paragraph 2, sentence 3 of the draft Corporate Income Tax Act as amended by the government draft).

  
  

• The so-called simple reduction pursuant to Section 9, Number 1, Sentence 1 of the Trade Tax Act is to be completely revised. Currently, 1.2% of the applicable assessed value is reduced. From 2025, the law currently stipulates that the reduction will be 0.11% of the property tax value. However, there are federal states whose property tax model does not provide for a property tax value. Therefore, the revised Section 9, Number 1, Sentence 1 of the Trade Tax Act is to provide, from 2025, that the property tax recorded as a business expense during the assessment period for real estate belonging to the entrepreneur's business assets is to be reduced. Because this property tax has already been deducted as a business expense, the provision effectively results in a double deduction for trade tax. Since the actual property tax payment will be decisive in the future, Section 20, Paragraph 2 of the Trade Tax Implementation Ordinance is superfluous and is to be deleted.

  
  

• Regarding the deadlines already provided for in the draft law for the preparation of a final balance sheet in cases of conversion, which is a prerequisite for a book value transfer, the Federal Council has proposed numerous amendments intended to clarify the regulations. The Federal Government fully supports these amendments.

  
  

• The Federal Government agrees with the proposal of the Federal Council to postpone the new regulation on VAT exemption for other services related to sports (Section 4 No. 22 Letter c of the Draft VAT Act) in order to provide it for a future legislative procedure after thorough technical examination.

  
  

• Section 13b of the Sales Tax Act clarifies that small businesses, as recipients of services, may continue to owe sales tax in accordance with Section 13b of the Sales Tax Act and that the tax exemption for small businesses therefore does not affect the sales they receive.

  
  

• The lump sum for inheritance costs (Section 10 Paragraph 5 Number 3 Sentence 2 of the Inheritance Tax Act) is to be increased from EUR 10,300 to EUR 20,000.

(Federal Council, statements of 27 September 2024 with a counter-statement by the Federal Government on the JStG 2024 – BT 20/13157 and the SteFeG – BT-Drs. 20/13159)