Germany's Federal Fiscal Court has ruled that the power to amend a final tax assessment under § 32a (1) Sentence 1 of the Corporate Income Tax Act (KStG) covers indirect consequences of a constructive dividend for the shareholder. It nevertheless sent the case back to the lower court for further fact-finding.
Germany’s Federal Fiscal Court has held that the power to amend a final, binding tax assessment under § 32a (1) Sentence 1 of the Corporate Income Tax Act (KStG) is not limited strictly to the direct consequences of an assessed constructive dividend.
The court issued its ruling in case No. IX R 16/25 on 2 September 2026, and the decision was published on 22 October 2026. It concerns an appeal against a judgment of the Finance Court of Saxony-Anhalt dated 6 August 2025 (case No. 1 K 645/22).
The court said the power also encompasses indirect consequences for the shareholder, such as treating a hidden capital contribution derived from the constructive dividend as subsequent acquisition costs for shares held in another corporation.
Background
In the dispute year 2015, the taxpayer was the sole shareholder and managing director of A GmbH and held a 50% shareholding in B GmbH. A GmbH had granted loans totalling EUR 485,000 to B GmbH, which fell due at the end of 2007. Only EUR 15,000 was repaid in 2010.
B GmbH was dissolved and struck from the commercial register in December 2015. A GmbH had written off the remaining receivable as uncollectible as of 31 December 2012. The tax office and A GmbH agreed to treat the write-off as a constructive dividend of EUR 479,995 to a related person, B GmbH. Under § 32a (1) KStG, the tax office amended the taxpayer’s 2012 income tax assessment to include this amount as investment income under § 20 (1) No. 1 Sentence 2 of the Income Tax Act (EStG).
The taxpayer did not claim a liquidation loss under § 17 (4) EStG in the 2015 return, and the 2015 assessment became legally binding in January 2018. In May 2020, the taxpayer applied to amend it under § 32a (1) KStG to recognise a liquidation loss of EUR 479,995. The tax office refused, and the Finance Court of Saxony-Anhalt ruled in favour of the taxpayer.
Court’s reasoning
The Federal Fiscal Court confirmed that § 32a (1) Sentence 1 KStG allows amendment for indirect tax consequences in triangular relationships. A benefit transferred between sister companies can constitute a constructive dividend to the common shareholder together with a hidden capital contribution to the beneficiary company.
The court said the wording and purpose of § 32a KStG link the corporate and shareholder levels to prevent unmitigated double taxation. Administrative discretion under the provision is regularly reduced to zero when a failure to amend would leave the assessment factually incorrect. The interpretation was coordinated with the I and VIII Senates of the court.
Judgment set aside
The court nevertheless found that the Finance Court had failed to establish essential facts:
- An accounting write-off of an uncollectible debt is not automatically a shareholder-motivated waiver. Only a formal or tacit waiver by A GmbH could qualify as a hidden capital contribution.
- A hidden capital contribution through a debt waiver is valued at its fair market or going-concern value, not its nominal value. If the receivable was worthless at the time, its value is zero and there are no subsequent acquisition costs.
- The Finance Court did not determine whether the liquidation loss under § 17 (4) EStG crystallised in 2015.
The Federal Fiscal Court quashed the judgment and remanded the case for rehearing. If the prerequisites are met, an amendment under § 32a (1) KStG will be procedurally authorised.
The ruling guides shareholders and tax offices on the reach of § 32a (1) KStG in triangular relationships, while confirming that the conditions for any resulting deduction must still be proved.
