Significant Changes to Tax Law as a Result of the Secondary Credit Market Promotion Act

On December 14, 2023, the German Federal Parliament passed the Secondary Credit Market Promotion Act in the version recommended by its Finance Committee on December 13, 2023. Prior to this, the act was adapted by means of several amendments and extended to other areas that were previously part of the Growth Opportunities Act. Although this had already been passed by the German Federal Parliament, it was rejected by the German Federal Council and is to be dealt with by the Mediation Committee. However, it is unlikely to be passed by the end of the year, which is why some aspects have now been brought forward via the Secondary Credit Market Promotion Act. We present the tax policy adjustments contained therein.

MoPeG Adjustments

The German Fiscal Code and other acts will be adapted to the legal changes resulting from the Act on the Modernization of Partnership Law (MoPeG). One of the main civil law changes of the MoPeG is the extensive repeal of the provisions on joint ownership of assets from the German Civil Code. As with corporations, there will be a strict separation of the asset spheres between partnerships and partners from January 1, 2024. In particular, the tax benefits of section 5 (1) and (2) of the German Real Estate Transfer Tax Act (GrEStG), section 6 (3) sentence 1 of the GrEStG and section 7 (2) of the GrEStG, which are aimed at joint ownership (community of joint ownership), would then come to nothing.
Against this background, the status quo in the German Real Estate Transfer Tax Act will initially be continued for a limited period until December 31, 2026 with the introduction of a new section 24 GrEStG, in which partnerships will continue to be treated as joint owners for the purposes of real estate transfer tax and their assets as joint assets. The time thus gained is to be used to intensively continue the review of the need to amend the Real Estate Transfer Tax Act and to create a more legally secure (new) statutory regulation.
It is also clarified in the explanatory memorandum to the act that the current subsequent retention periods of sections 5 and 6 GrEStG are not violated solely by the entry into force of the MoPeG.
The act also introduces a permanent fiction of partnerships as joint ownership for income tax law and gift tax law, so that the respective privileges of partnerships in these areas of law are permanently guaranteed.

Reform of the Interest Barrier

The provisions of the interest barrier pursuant to section 4h of the German Income Tax Act (EStG) and section 8a of the German Corporation Tax Act (KStG) must be adapted to Directive (EU) 2016/1164 (Anti-Tax Avoidance Directive - ATAD) by December 31, 2023.
In future, the stand-alone clause can only be used if the taxpayer is not a related party within the meaning of Section 1 (2) of the German Foreign Tax Act (AStG) and does not have a permanent establishment outside the state in which its residence, habitual abode, registered office or management is located. As a result of the definition of a group, which is decisive for the interest barrier, the scope of application of the equity escape clause also changes.
In addition, the term “net interest expenses” is legally defined in section 4h (1) sentence 4 EStG and it is clarified that an EBITDA carryforward does not arise in financial years in which the interest expenses do not exceed the interest income.
The amendments are to be applied for the first time for financial years beginning after the date of the German Federal Parliament’s legislative resolution and not ending before January 1, 2024.

No Taxation of December Aid

In December 2022, the federal government assumed the costs for the gas and heating discount in order to relieve citizens of the high energy prices at the time. As social compensation, this aid was to be taxed, which is now no longer to take place in view of the tax authorities' enforcement efforts and the expected additional tax revenue.

Electronic Data Exchange Between Employers, Tax Authorities and Private Health Insurance Only From January 1, 2026

In order to reduce bureaucracy in the (wage) tax treatment of contributions to private health and long-term care insurance, a comprehensive electronic data exchange is to be introduced between private health and long-term care insurance companies, the tax authorities and employers. The corresponding regulations were adopted with the Annual Tax Act 2020 and specified in detail with the Annual Tax Act 2022. The statutory start date for the introduction of data exchange was January 1, 2024. This date has now been postponed by two years to January 1, 2026.