Fortunately, shortly before Christmas, the Bundesrat approved the Act Amending the Minimum Tax Act and Implementing Further Measures (MindStAnpG), and the highly controversial and practically unenforceable Section 13 of the Foreign Tax Act (AStG) regarding additional taxation was reformed in favor of investors (MindStAnpG—Act of December 22, 2025—Federal Law Gazette 2025 I No. 353).
1. Overview of the tax on imputed income under Sections 7–14 of the Foreign Tax Act (AStG)
The provisions on additional taxation set forth in Sections 7–14 of the Foreign Tax Act (AStG) are intended to prevent taxpayers subject to unlimited tax liability in Germany from shifting profits to a foreign company (a so-called “intermediate company”) in a low-tax country, thereby removing those profits from German taxation.
Through the application of the “Hinzurechnungsbesteuerung” (add-back taxation), so-called passive income of a foreign corporation—whose effective tax rate abroad is less than 15%—may be subject to German taxation if the shareholder is subject to unlimited tax liability. One of the requirements for applying the additional taxation provisions of § 7 et seq. of the Foreign Tax Act (AStG) is that the shareholder subject to unlimited tax liability directly or indirectly controls the foreign corporation, i.e., holds a stake of more than 50%.
Section 13(1), sentence 1, of the AStG, as in effect prior to the MindStAnpG of December 22, 2025, (so-called “extended inclusion taxation”) went so far as to provide that, even with a stake of at least 1% in a foreign company located in a low-tax country, income of a capital investment nature was subject to German taxation under certain conditions, depending on the shareholder’s ownership percentage. In addition, the provision was expanded by Section 13(1), sentence 4, of the AStG to the effect that the inclusion rule applies even for ownership interests of less than 1% if the income of the foreign company in a low-tax country consisted exclusively or almost exclusively of income of a capital investment nature.
So-called “income of a capital investment nature” under § 13 AStG includes all income, including capital gains, derived from the holding, management, preservation, or appreciation of cash, receivables, securities, equity interests (excluding income within the meaning of § 8(1)(7) and (8) AStG) or similar assets, unless the taxpayer proves that such income derives from an activity that serves the foreign company’s own business activities falling under Section 8(1)(1) through (6) of the AStG (see Section 13(2) of the AStG in this regard). This regularly affected international fund structures as well as typical private equity vehicles with German management holding companies.
In particular, the application of § 13(1), sentence 4, of the AStG, as it stood prior to the MindStAnpG of December 22, 25, was virtually impossible to implement in practice, since, in principle, every fund investor would have had to prove—even in cases of indirect ownership interests of less than 1%—that the interests in foreign companies did not meet the requirements of Section 13(1), sentence 4, of the AStG.
2. Amendment of Section 13 of the AStG by the MindStAnpG of December 22, 2025
With the Bundesrat’s approval of the Act on the Amendment of the Minimum Tax Act and the Implementation of Further Measures (MindStAnpG), Section 13 of the Foreign Tax Act (AStG)—which had previously been heavily criticized in practice—has now, fortunately, been reformed.
The following changes, in particular, are welcome:
Increasing the Participation Rate:
The application of § 13(1), sentence 1, of the AStG now requires that the taxpayer subject to unlimited tax liability (alone or together with persons related to him pursuant to § 7(3) and (4), sentence 1 of the AStG) holds, at the end of the foreign corporation’s fiscal year, at least 10% of the voting rights or a minimum ownership interest of 10% of the shares in the par value of the foreign corporation in a low-tax country, which generates income of a capital investment nature
Increase the exemption limits under Section 13(1), sentence 3, of the AStG for income from capital investments as follows:
- Increase in the relative exemption threshold from 10% to one-third of the total income for which the foreign company serves as an intermediate company, and
- Increase in the absolute exemption limit for income from capital investments of the intermediate company from 80,000 EUR to 100,000 EUR
- Limitation of the application of the absolute exemption threshold to the intermediate company (“company-based approach”), i.e., under the new version of Section 13 of the Foreign Tax Act (AStG), the shareholder’s other investments in other foreign investment companies are no longer taken into account when determining the absolute exemption threshold
Complete repeal of Section 13(1), sentence 4, of the AStG (old version), which already applied to ownership stakes of less than 1%
The new provisions of Section 13 of the Foreign Tax Act (AStG) apply to all pending cases involving income to be included from foreign intermediate companies whose fiscal years begin after December 31, 2021.
3. Conclusion
The amendment to Section 13 of the Foreign Income Tax Act (AStG) (as amended by the Minimum Tax Amendment Act (MindStAnpG) of December 22, 2025) significantly simplifies matters for funds and private equity firms, as well as for tax advisors, with regard to the legally certain determination of tax bases. Until now, the practical implications of this provision were scarcely discernible. Thanks to the more practice-friendly wording of Section 13 of the AStG, legally certain taxation can now be ensured within the framework of the addition rule. In addition, family offices, investors, and management stakeholders are exempt from the threat of an addition under this rule.
