19.12.2025Upper house approves bill to update minimum taxation rules
Bill implements OECD administrative guidelines and changes to domestic income tax and CFC rules
Germany’s upper house of parliament on 19 December 2025 approved a bill to amend the Pillar Two minimum taxation rules and further measures (Gesetz zur Anpassung des Mindeststeuergesetzes und zur Umsetzung weiterer Maßnahmen). The lower house of parliament approved the bill earlier on 13 November 2025, and the bill must now be signed by the president and published in the federal gazette to become effective.
The bill, whose first draft version was initially published by the prior government back in August 2024, was put on hold due to the change of government at the end of 2024. The new government, however, continued the law initiative and now successfully finalized the legislative process.
The main purpose of the bill is to implement through Germany’s minimum taxation rules the country-by-country (CbC) reporting safe harbor rules as described in the December 2023 OECD Pillar Two guidance. This includes, for example, the use of qualified financial statements/reporting packages for CbC reporting safe harbor purposes, purchase price accounting adjustments in qualified financial statements, the implementation of rules related to hybrid arbitrage arrangements, and rules on the CbC reporting safe harbor in situations where no obligation to prepare a CbC report exists. In addition, the bill includes several editorial updates to properly reflect the wording of Council Directive (EU) 2022/2523 on ensuring a global minimum level of taxation for multinational enterprise (MNE) groups and large-scale domestic groups in the EU (generally referred to as the EU minimum taxation directive) and various legislative references, as well as other important administrative simplifications.
The bill also includes amendments to implement the OECD Pillar Two administrative guidance released in June 2024 and regulations for the exchange of information on minimum taxation reports between Germany and other EU member states in line with Council Directive (EU) 2025/872 (9th directive on administrative cooperation in the field of taxation or “DAC 9”). The DAC 9 directive is aimed at standardizing the information exchange on minimum tax reporting within the EU. This should facilitate the application of section 75(2) of the German Minimum Tax Act, which provides for the GloBE information report (GIR) to be submitted in only one jurisdiction provided there is a binding information exchange agreement between Germany and the jurisdiction in which the GIR has been submitted, which is now considered to be the case if the jurisdiction is an EU member state. This is aimed at reducing the administrative burden for affected companies and providing for legal certainty in cross-border situations.
In addition, the bill aims to implement the OECD administrative guidelines of 13 January 2025 (with a particular focus on article 9.1 of the OECD Pillar Two model rules, which sets out the transitional rules applicable where an MNE group comes within scope of the Pillar Two/GloBE rules).
Apart from the amendment of the German minimum taxation rules, the final bill includes the elimination of the royalty barrier rule in section 4j of the Income Tax Code. The royalty barrier rule was originally introduced for expenses incurred after 31 December 2017 to prevent profit shifting by means of royalty payments during the globally agreed transition period for the abolition or amendment of harmful preferential tax regimes until 30 June 2021. As the transition period has expired and in light of the progress of the implementation of the Pillar Two rules, the legislator did not see a need to keep this rule and therefore abolished the rule as part of a de-cluttering process. The rule is eliminated with retroactive effect as from 1 January 2025.
The final bill also includes certain changes to the German controlled foreign company (CFC) rules, the General Tax Act, and the Investment Tax Act.
Within the German Foreign Tax Act (FTA), the bill retroactively introduces an increased minimum shareholding requirement of 10%, thereby reducing the scope of the German CFC rules for intermediary companies generating specific investment income (Zwischeneinkuenfte mit Kapitalanlagecharakter) in terms of section 13 of the FTA. This change applies retroactively starting from 2022.
With regard to the increase to the relative and absolute threshold for the application of the CFC rules based on section 9 of the FTA, the final bill provides for a threshold of EUR 100,000 compared to the current threshold of EUR 80,000, as well as a relative threshold increase from 10% to 33.3%. Both thresholds must be analyzed at the level of the respective CFC and no longer in a two-step process at the level of the CFC and its shareholders. These changes become effective starting from 2026.
In addition to these changes, several other provisions of the CFC rules (such as more stringent exit taxation rules for individuals) are specifically incorporated in the final bill.
The signature from the president is expected to take place in the coming days and should be a mere administrative act. The bill will then be published in the federal gazette and enter into force on the day after its publication.
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