Investment Tax Credit: When the Tax Office Revokes the Tax Benefit

The investment deduction under Section 7g of the German Income Tax Act (EStG) is a popular tool for small and medium-sized enterprises to bring forward the tax treatment of planned investments. The deduction reduces taxable income in the year it is claimed, and the investment must then actually be made within a specified time frame. But what happens if the investment does not take place? A recent tax court ruling shows that the tax authority is permitted to act more quickly in such cases than many business owners expect.

How the Investment Deduction Works

Business owners planning a purchase—such as a machine, a vehicle, or a photovoltaic system—can claim up to 50 percent of the estimated acquisition costs in advance as a deduction from profits. This reduces the tax burden in the year the deduction is claimed, even though the investment has not yet taken place.

In return, the planned investment must actually be made within three years. If this does not happen, the deduction is retroactively reversed in the original year—with the result that the tax assessment from that time is amended and the tax is reclaimed, usually including interest on the back payment.

The Case: Photovoltaic Systems and the COVID-19 Extension

In the case decided, the taxpayers had claimed investment deductions for photovoltaic systems for both 2017 and 2018. The standard three-year investment period had been extended until the end of 2023 by the Fourth COVID-19 Tax Relief Act.

In March 2024—that is, after the extended period had expired—the tax office requested that the taxpayers provide proof that the investments had been made. The taxpayers in question did not comply with this request. They argued that they were not required to indicate whether the investments had been made until they filed their 2023 income tax return. Since the filing deadline for that return did not expire until May 2025, they saw no need to take action at that time.

The tax office took a different view, did not wait, and amended the tax assessment notices for 2017 and 2018 as early as May 2024. The investment deductions were reversed.

The Court Upholds the Tax Office’s Decision

The tax court ruled in favor of the tax office. The key finding: The tax office is not required to wait for the filing of the tax return for the final year of the investment period before reversing the deductions.

The court based its decision on the wording of the law: If the investment is not made by the end of the period, the investment deduction must be reversed. Even though the law does not explicitly specify who is responsible for the reversal, the wording implies that the tax office may amend the original assessment ex officio—as soon as it is established that the investment did not take place.

What Business Owners Should Learn From This

The case highlights two points that are important in practice.

First: Anyone claiming an investment deduction should keep an eye on the investment deadline and carry out the planned acquisition in a timely manner. If it becomes apparent that the investment cannot be made by the deadline, one should seek tax advice early on—for example, regarding whether an alternative investment could meet the requirements.

Second: If the tax office requests proof of the investment after the deadline has passed, one should respond promptly. Anyone who ignores the request or refers to later filing deadlines risks a prompt amendment to the relevant tax assessments—including interest on back payments, which can add up over several years.

About Trimborn . Partner

Trimborn . Partner is a multi-award-winning tax consulting and auditing firm with offices in Düsseldorf and Oberhausen. As tax advisors specializing in small and medium-sized businesses, we assist companies, skilled trades businesses, and self-employed professionals with tax-related investment planning—from claiming an investment deduction to submitting documentation to the tax office by the deadline. If you have any questions about claiming or revoking an investment deduction, our tax advisory experts in Düsseldorf and Oberhausen will be happy to assist you.