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Certified Tax Advisor, Lawyer, Director, National Office Tax & Legal
Certified Tax Advisor, Director, National Office Tax & Legal/Quality Assurance
Senior Consultant, National Office Tax & Legal
For unit-linked pension commitments, the tax recognition of pension provisions without a guaranteed minimum benefit had long been a matter of debate. In its circular dated September 17, 2026, the German Federal Ministry of Finance (Bundesfinanzministerium; BMF) has now aligned itself with the case law of the German Federal Fiscal Court (Bundesfinanzhof; BFH) and recognizes pension provisions pursuant to Section 6a of the German Income Tax Act (Einkommensteuergesetz; EStG) also for defined contribution-oriented benefit commitments without a guaranteed minimum benefit. At the same time, it repealed its contrary circular of December 17, 2002, under which a provision could only be recognized to the extent that the pension entitlement related to a guaranteed minimum benefit. The new administrative principles apply not only to the specific case decided but also to all open cases.
The starting point of the German Federal Finance Ministry circular is the BFH decision of September 4, 2024, case no. XI R 25/21. In the case at issue, a German limited liability company (GmbH) granted its employees unit-linked pension commitments. The amount of the promised retirement or survivor benefits depended on the value of a reinsured life insurance policy invested in fund units at the time the pension event occurred. No minimum benefit was guaranteed.
Nevertheless, the BFH affirmed the existence of a legally binding pension entitlement. The fact that its specific amount can only be determined upon occurrence of the pension event based on the value of the fund merely affects the extent of the benefit and does not prevent the recognition of a pension provision. Dependence on the performance of the fund does not constitute an impermissible dependence on future profit-related remuneration, nor does it represent a tax-harmful reservation within the meaning of Section 6a (1) no. 2 EStG.
The pension commitment must still be granted in writing and must contain clear information regarding the type, form, conditions, and amount of the future benefits. A quantified benefit amount is not required, provided that the relevant basis for determining the benefit, for example the fund value at the occurrence of the pension event, is clearly defined.
According to the current administrative position, the following now applies: To the extent that future pension benefits depend on uncertain events, such as the value development of underlying securities at a specified date, the valuation of the pension provision pursuant to Section 6a EStG must be based on the valuation conditions existing as of the respective balance sheet date. Accordingly, the relevant value is generally the current market price of the securities or the corresponding value of the reinsured insurance policy. If a contractual minimum benefit is provided, at least that amount forms the basis of the valuation. Future increases or decreases in value may not be anticipated.
However, the pension provision cannot simply be recognized in the amount of the current fund value or the full insurance reserve. Rather, the tax present value must be determined in accordance with the specific valuation rules of Section 6a (3) EStG and by applying accepted actuarial principles.
For employer-financed benefit components, the present value difference method (Barwertdifferenzmethode) must generally be applied. Under this method, the present value of future pension benefits is reduced by the present value of the remaining level annual contributions to be made. The minimum present value comparison pursuant to Section 6a (3) sentence 2 no. 1 sentence 1 second alternative EStG is limited to salary conversion arrangements within the meaning of Section 1 (2) of the German Occupational Pensions Act (Gesetz zur Verbesserung der betrieblichen Altersversorgung; Betriebsrentengesetz). This requires both that the beneficiary personally falls within the scope of the Betriebsrentengesetz and that, from an objective perspective, the arrangement qualifies as an occupational pension scheme under that Act.
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Particularly in the case of controlling shareholder-managing directors, it is therefore necessary to examine whether the personal scope of the Betriebsrentengesetz applies. If this is not the case, the minimum present value comparison does not apply, even where the financing arrangement is designated as a salary conversion scheme.
The separate balance sheet recognition of the pension obligation and the assets used to secure it remains unchanged. In this regard, the BMF refers to R 6a (23) of the Income Tax Guidelines (EStR) and H 6a (23) of the Income Tax Guidance Notes (EStH). Accordingly, the unit-linked reinsured life insurance policy must be recognized as a separate asset, while the pension obligation must be recognized as a liability and measured pursuant to Section 6a EStG.
Transitional rule: Exception to the catch-up prohibition
As a general rule, the so-called catch-up prohibition (Nachholverbot), which exists only in the tax balance sheet, under Section 6a (4) sentence 1 EStG limits the subsequent increase of a pension provision. In practice, this regularly results in differing provision amounts between the commercial balance sheet and the tax balance sheet. However, the tax catch-up prohibition does not apply where the omitted addition was based on case law or an administrative position that has subsequently been abandoned. Accordingly, the BMF provides that, upon first application of the new circular in a financial year ending before January 1, 2028, no objection will be raised if the catch-up prohibition is disregarded.
This transitional rule may allow the initial full recognition of pension provisions that were previously not recognized. However, an actuarial valuation pursuant to Section 6a (3) EStG remains mandatory; therefore, the current value of the reinsured life insurance policy may not simply be adopted as the pension provision without further examination.