In our article dated January 18, 2026, we already reported on the easing of the additional taxation rule through the amendment to Section 13 of the Foreign Tax Act (AStG) for investors, regardless of their ownership stake. But what are the practical tax implications of the recent amendments to Section 13 of the AStG, as implemented by the Minimum Tax Adjustment Act?
The broad scope of the “add-back” taxation has frequently been the subject of criticism in the past. The focus of the regulation was on “add-back” taxation, particularly with regard to income of an investment nature. The practical consequence of this was that even in the case of the smallest holdings in foreign companies at the fund level (starting at 1%), a complex review of whether passive income was present—and the subsequent taxation of that income in Germany—had to be carried out.
It is now welcome news that the minimum ownership threshold has been raised from 1% to 10%. Since the ownership stake held by investors in private equity funds is, in most cases, below this (new) threshold, the requirement to assess extended tax inclusion will no longer apply in the future. It is also particularly worth noting that the change applies retroactively starting in 2022. In practice, therefore, it was often clarified in consultation with the tax authorities whether the assessment still had to be conducted for more recent years.
Also welcome is the tax authorities’ recognition of the established case law of the Federal Fiscal Court (BFH). Previously, multi-tiered partnerships faced the risk of “upward contagion” extending all the way to the top tiers if commercial income was generated at lower tiers. As a result, there was a risk that the upper, non-commercial parts of the structure would be subject to trade tax. However, the new regulation and the revised administrative practice now make it clear that such “spillover” no longer applies to typical umbrella fund structures—as a result, the trade tax liability is eliminated, which benefits investors’ returns.
Recommendations for Action Based on the Changes
Since the regulations apply retroactively through 2022, you should
- review outstanding tax assessment notices. Since the changes already apply to past periods, notices that have already been issued but can still be amended (for example, because they are still subject to review under Section 164 of the German Fiscal Code (AO)) can benefit from the changes.
- review compliance processes, as the elimination of the audit requirement can result in significant time savings.
The Minimum Tax Adjustment Act is more than just a simple bureaucratic adjustment; rather, it provides relief to investors. The combination of the new 10% threshold in the AStG and the elimination of the trade tax “contagion” effect provides much-needed legal certainty and strengthens the position of German (umbrella) funds in international competition.
