ARTICLE · 23 JULY 2025

German Tax Update – 10 July 2025

Alvarez & Marsal

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When a corporation sells its interest in a partnership, the resulting trade tax under Section 7 sentence 2 of the German Trade Tax Act (GewStG) does not arise at the level of the selling corporation...

GermanyTax

Clemens Petersen

Matthias Luther

1. Disposal Gains in Tiered Partnerships: BFH Provides First Clear Guidance on Trade Tax Treatment

Background

When a corporation sells its interest in a partnership, the resulting trade tax under Section 7 sentence 2 of the German Trade Tax Act (GewStG) does not arise at the level of the selling corporation—where the gain is economically realized—but rather at the level of the partnership itself. This means the trade tax is not borne by the party earning the gain, but by the entity being sold. As a result, the trade tax burden falls on the other (often uninvolved) partners of the partnership. To address this economic mismatch, many partnership agreements include so-called "trade tax allocation clauses" under which the economic burden of the tax is shifted to the seller.

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