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December 21, 2023

German Federal Council approves BEPS 2.0 Pillar Two implementation bill together with other tax bills

  • The German Federal Council has approved the bill addressing the implementation of the Global Minimum Tax in accordance with the respective European Union (EU) Minimum Tax Directive and the Organisation for Economic Co-operation and Development (OECD) Model Rules as well as other tax bills.

Executive summary

On 15 December 2023, the German Federal Council approved the bill implementing the EU Minimum Tax Directive, which the German Parliament had adopted on 10 November 2023. In addition to implementing the Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two rules into German tax law, the bill would reduce the low-tax threshold from 25% to 15% for both German controlled foreign company (CFC) tax purposes and the German royalty deduction limitation rule.

The German Federal Council on 15 December also gave its approval on tax law changes relating to updates to German partnership law coming into force on 1 January 2024, including an extension of the existing German Real Estate Transfer Tax (RETT) treatment of certain transactions involving partnerships for three years.

Regarding the proposed changes included in the draft of the Growth Opportunities Act, there is still disagreement on the legislative process. The German Federal Council only approved the proposed amendments relating to the existing German interest deduction limitation rule (30% earnings before interest, taxes, dividends and annuities (EBITDA) rule).

Detailed discussion

BEPS 2.0 Pillar Two implementation bill and accompanying measures

The implementation bill approved by the German Federal Council is closely aligned with the EU Minimum Tax Directive and the OECD Model Rules, considering the provisions of the Agreed Administrative Guidance of the Inclusive Framework on BEPS dated 2 February 2023 and 17 July 2023. It also includes corresponding amendments to the German Commercial Code, the Financial Administration Act, and the General Tax Code.

The implementation bill also meets the demand made by the business community for a reduction in the low-tax threshold for German CFC tax purposes. This reduction from the current 25% to 15% will be effective from 2024 onward to achieve harmonization between German CFC taxation and global minimum taxation with respect to the taxation of foreign activities. As a further accompanying measure, the low-tax threshold relevant for foreign licensors under the German royalty deduction limitation rule will also be reduced from 25% to 15% from 2024 onward.

The implementation bill will enter into force on the day after its announcement in the German Federal Gazette, which according to EU requirements should occur no later than 31 December 2023. With regard to Pillar Two, the Income Inclusion Rule (IIR) and Domestic Minimum Top-up Tax will apply to financial years beginning after 30 December 2023, while the Undertaxed Profits Rule (UTPR) will generally apply to financial years beginning after 30 December 2024.

Tax law changes due to updates to German partnership law

Even though, as of 2024, updates to German partnership law modify the civil law treatment of partnerships with own legal capacity, the tax treatment of these partnerships shall remain unaffected. Thus, for income tax and for RETT purposes, a fiction will be introduced under which these partnerships and their partners will be treated as if the civil law changes were not enacted.

For RETT purposes this means that the RETT exemptions for transfers of German real estate between partners and "their" partnerships (e.g., as part of hive-down transactions) and vice versa as well as between partnerships with the same partners will continue to be available. However, unlike for income tax purposes, the RETT fiction will only apply until the end of 2026. According to the explanatory notes, the years until 2026 will be used to continue examining the need for a large RETT reform.

Changes to the German interest deduction limitation rule

With regard to the interest deduction limitation rule (30% EBITDA rule), the proposed changes from the late-August draft of the Growth Opportunities Act were adopted by the German Parliament and approved by the German Federal Council in a separate bill. These include the extended definition of interest expense and the tightening of the stand-alone as well as the group-escape. However, the so-called anti-fragmentation rule shall not be implemented. Therefore, the €3m threshold will continue to be available per entity/tax group (and not only on a pro rata basis for an accounting group or for related parties).

All other changes included in the draft of the Growth Opportunities Act, such as an extended loss carry-back, an increased loss offset, the (re-)introduction of declining depreciation rates and the proposed additional interest-rate limitation rule,1 which was replaced later in the legislative process by a new set of transfer pricing rules for inbound financing arrangements, were not included in the bill approved by the German Federal Council, but will continue to be discussed in the new year.


For additional information with respect to this Alert, please contact the following:

Ernst & Young GmbH, Germany

Ernst & Young LLP (United States), German Tax Desk, New York

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor



1 For details, see EY Global Tax Alert, German government issues revised draft Growth Opportunities Act bill on corporate tax reform, dated 6 September 2023.


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