In its judgment of 1.4.2026 (I R 11/24), the Federal Fiscal Court ruled on the…
In response to the decision of the German Federal Fiscal Court dated 26 September 2023 (IX R 13/22), legislation is putting a stop to the opportunities to avoid the taxation of profits from private sales which this decision had previously opened up. In the future, it will not only be the purchase and sale of shares in partnerships that will be treated the same as the purchase and sale of the proportionate assets in section 23 (1) sentence 4 of the German Income Tax Act (Einkommensteuergesetz, EStG). Rather, the new provision generally refers to "communities of joint owners" (Gesamthandsgemeinschaften).
In the above decision, the Federal Fiscal Court stated that the purchase of a share in a community of heirs (Erbengemeinschaft) does not constitute an acquisition within the meaning of section 23 (1) sentence 1 EStG and therefore does not qualify as a sales transaction subject to taxation. A community of heirs does not constitute a partnership (Personengesellschaft), meaning neither the purchase nor the sale falls under the provisions of section 23 (1) sentence 4 EStG which sets forth that the purchase and sale of shares in partnerships are deemed to be equivalent to the purchase and sale of the proportionate assets. Thus, in practice, it made sense to acquire a co-heir share (Miterbenanteil) instead of an individual asset because such acquisition did not qualify as a private purchase or sales transaction within the meaning of section 23 EStG and was therefore exempt from tax.
At the recommendation of the German Finance Committee, the legislation recently decided to fill this loophole. Section 23 (1) sentence 4 EStG now does not only mention the partnership but also the community of joint owners. In doing so, the purchase or sales of a share in a community of joint owners has been equated with the purchase and sale of an asset associated with the joint ownership. The consequence is that the speculation period is based on the time when the share in the joint ownership was acquired and that the sale may fall under section 213 EStG.
By means of this reform, the legislation fills the loophole which was often used in practice to avoid speculation periods and, subsequently, the taxation of profits from private sales. This is relevant, in particular, for communities of heirs. The reform has less significance for partnerships under German civil law (GbR), i.e. another form of communities of joint owners, because they were already covered by section 23 (1) sentence 4 EStG as partnerships.
The newly-amended section 23 (1) sentence 4 applies to all sales where the speculation period has not yet expired.
Teresa Werner
Alexandra Wolter
