News on the taxation of earn-out payments

In a recent decision, the German Federal Fiscal Court ruled on the taxation of earn-out payments in connection with the sale of a co-entrepreneur's share that profit- and turnover-dependent purchase price components are only taxable at the time of receipt, so that the seller is not entitled to a preferential tax rate in accordance with Section 34 (3) of the German Income Tax Act (“half tax rate”). The article classifies the Federal Fiscal Court case law and provides a general overview of the taxation of earn-out payments.