Legal Insights Germany

With the Act to Modernize the Law on Civil Law Partnerships, comprehensive changes to German partnership law came into force on January 1, 2024. Family-owned asset management companies should pay close attention to the reforms.

In the event of poor or non-performance by a contractual partner, international sales contracts often lead to legal disputes. The first question that often arises is which law is applicable to the contract. We shed light on the applicable law in cross-border sales contracts.

Together with relevant financial sector players and associations, the German federal government wants to strengthen Germany’s presence as a startup hub through the so-called WIN initiative. A package of measures to improve the framework conditions for growth and innovation capital has been agreed upon, with participating companies aiming to invest €12 billion by 2030.

The German legislator is currently introducing a large number of tax law changes in various draft bills. This article provides an overview of the most important planned changes.

In its decision dated April 24, 2024 (I R 41/20), the Federal Fiscal Court decided for the legal status up to December 31, 2021 that exchange rate losses from loans granted by substantial shareholders are not tax-deductible.

In its September 28, 2022 ruling (VIII R 20/20), the Federal Fiscal Court decided, contrary to the previous opinion of the tax authorities, that a resolution on an incongruent distribution of a limited liability company that deviates from the articles of association is effective under civil law and can be recognized for tax purposes. In its letter dated September 4, 2024, the Federal Ministry of Finance adapted its opinion to the case law.

The recent heavy rainfall and resulting flooding in southern Germany raises the question of whether companies can be held responsible for climate damage. While there has thus far been no such outcome to a climate litigation in Germany, it is worth taking a closer look at the individual standards and their interpretation to be able to assess whether claims could be justified and under what circumstances.

The amendments to the Carbon Dioxide Storage Act adopted by the German Federal Cabinet could provide industries whose emissions are unavoidable or difficult to avoid with opportunities to achieve the climate targets by 2050. The new Carbon Dioxide Storage and Transport Act (Kohlendioxid- Speicherungs- und -Transportgesetz) is intended to uniformly regulate the requirements for carbon dioxide pipelines and, for the first time, allow the offshore storage of carbon dioxide for purposes other than research in Germany.

The Federal Cabinet adopted the government draft of the Annual Tax Act 2024 on June 5, 2024. It largely corresponds to the draft bill from May 17, 2024 and contains a large number of amendments to various tax laws. The legislative process is currently expected to be completed in Q4 2024.

The German legislator has extended the regulations on German value added tax (VAT) exemption for management services rendered to alternative investment funds (AIFs) so that management services to any AIF are now exempt from VAT. The similarity test previously required for analyzing if an AIF is comparable to UCITS no longer applies. The German tax authorities have amended their application instructions accordingly.

On May 14, 2024, ECOFIN agreed on the Directive on Faster and Safer Relief of Excess Withholding Taxes (so-called FASTER Directive). The Directive is intended to simplify withholding tax procedures for investors, tax administrations and so-called financial intermediaries, particularly in cross-border cases, and improve possibilities of control for tax authorities.

The EU AI Act was adopted by the Council of the European Union on May 21, 2024. The final text was published in the Official Journal on July 12, 2024 and to come into force on August 1, 2024, instead of July as previously assumed. However, numerous legal rules for artificial intelligence (AI) apply already.

The federal government is planning to invest considerable funds into promoting startups and increasing exit opportunities for German and European startups. According to the latest plans, a further €1.6 billion from the so-called Future Fund, which was previously held as a strategic reserve, and €150 million from the special assets of the European Recovery Program are to be made available for this purpose.

After more than 10 years of application of the Alternative Investment Fund Managers Directive (AIFMD), the European Parliament and the Council recently adopted an amending directive (known as AIFMD II). Among other things, it provides for new regulations for debt funds.

The German Federal Constitutional Court has ruled that Sec. 6 Para. 5 Sent. 3 German Income Tax Act violates the principle of equality before the law insofar as it does not provide for a book value link in the case of a direct transfer of assets between sister partnerships with identical shareholdings.

In its rulings dated December 14, 2023 (VI R 1/21 and VI R 2/21 NV), the Federal Fiscal Court (BFH) confirmed its previous case law on the taxation of management participations and further specified the criteria for distinguishing between capital income and wage income.

End of February, the Federal Parliament approved the draft Growth Opportunities Act, in the version as revised by the Mediation Committee. However, it is still unclear at this stage whether the required majority of the federal states will be achieved for an adoption by the Federal Council.

In its verdict of September 15, 2023, the German Federal Court of Justice increased the requirements to be placed on a seller in the context of due diligence. The court determined under which circumstances a seller fulfills its duty of disclosure in individual cases, particularly if information relevant to the transaction is provided in a virtual data room.

The German Braunschweig Higher Regional Court recently decided on whether specific environmental, social, and governance (ESG) reporting obligations can be provided for in the articles of association of a stock corporation.

Shortly before the end of 2023, the German legislator introduced and passed a large number of tax law changes. We provide an overview of the main changes to corporate tax law as a result of the Growth Opportunities Act, the Minimum Taxation Directive Implementation Act, the Future Financing Act, and the Secondary Credit Market Promotion Act, as well as the status of the legislative process at the end of the year.

The German tax authorities are adopting and supplementing new principles of case law on the allocation of real estate properties in chains of shareholdings for German real estate transfer tax purposes in cases of share deals. This could have a significant impact on transactions and compliance processes for groups that possess German real estate.

The German Growth Opportunities Act aims to strengthen Germany's competitiveness as a business location by increasing growth opportunities for the economy, enabling investment and innovation in new technologies, and providing for numerous significant tax changes.

The draft bill to implement the EU Minimum Tax Directive in Germany includes guidance for business units that are subject to this additional income tax.

Two recent German Federal Court of Justice decisions will have a major impact on takeover law practice.

The German Federal Court of Justice further facilitated the exclusion of subscription rights by ruling that an express statement of purpose is not required in the agenda item of the notice for an annual general meeting.

The EU AI Act, currently being negotiated in Brussels, will have a significant impact on the M&A sector if it is passed. While the EU encourages companies to become more active in the AI space, there is still considerable uncertainty on which systems and applications the act will cover—and on how to define AI.

The draft bill for Germany’s Financing for the Future Act (Zukunftsfinanzierungsgesetz - ZuFinG) was published on April 12, 2023. The planned modernization measures are intended to strengthen the performance of the German capital market and increase the attractiveness of Germany as a financial hub.

As the German Federal Financial Supervisory Authority (BaFin) rarely intervenes in the discussion of current legal topics, its latest statement published on March 30, 2023 in its BaFinJournal under the (here translated) title "Collaborative Engagement and the Attribution of Voting Rights: When Does It Get Tricky?" is all the more significant. In this statement, the BaFin examines forms of collaborative engagement with high practical relevance for attribution constellations under securities law.

The German government on 5 April 2023 adopted a draft bill on the 11th Amendment to the German Competition Act, which introduces, under certain circumstances, new far-reaching interventional powers for the German Federal Cartel Office.

The German Parliament passed the law implementing Directive (EU) 2021/2101 with regard to the disclosure of income tax information by certain companies and branches (so-called public country-by-country reporting) on May 11, 2023. The rules will apply to multinational and high turnover (turnover threshold at €750 million) companies—both unrelated and related companies—as well as domestic branches of unrelated and related companies established outside the European Union. Exceptions exist for CRR credit institutions and large securities institutions if they publish a country-by-country report in accordance with the relevant regulatory requirements.