German High Court restricts deduction of cartel fines in business valuations
Germany’s Federal Fiscal Court ruled that cartel fines are extraordinary expenses, preventing their deduction from corporate valuations using the simplified income-based method.
The German Federal Fiscal Court (BFH) issued a ruling on March 25, 2026, clarifying the treatment of extraordinary expenses in business valuations. Under the ruling, cartel fines are classified as non-deductible items when applying the simplified income-based valuation method under the German Valuation Act (BewG).
The legal dispute involved a limited partnership that attempted to reduce its valuation for gift tax purposes by deducting millions of euros in cartel fines. Tax authorities successfully challenged this, adding the fines back to the operating results and increasing the company's valuation from approximately €4.5 million to €7 million. The court dismissed the company's argument that such fines were an expected, recurring consequence of its business model.
The BFH held that because such fines are intended to sanction conduct outside of legal business operations, they lack predictive value for future income. Since the purpose of the fine is to deter unlawful behavior, it cannot be considered a representative cost for future performance, effectively disqualifying it from the base value calculation.
This decision clarifies the interpretation of "extraordinary expenses" under Section 202 of the BewG. The ruling reinforces that costs arising from unlawful activity do not constitute ordinary business expenses, providing a definitive standard for tax auditors and corporate advisors managing valuation disputes in Germany.