Fines for illegal price-fixing: Effects on income-based valuation?

In various tax contexts, such as inheritance and gift tax or taxation of reorganizations, it is often necessary to determine the fair value of a business. For business assets or shares in corporations, the simplified income-based valuation method under Sections 199 et seq. of the German Valuation Act (Bewertungsgesetz; BewG) can generally be applied. Based on past operating results, a sustainably achievable annual income for the future is estimated and capitalized.

The German Federal Fiscal Court (Bundesfinanzhof; BFH) decided on March 25, 2026, in a case (no. II R 17/23) where operating results were significantly reduced by exceptional business events — here: large cartel fines. Unlike the German Income Tax and Corporate Income Tax Act, the BewG does not contain an explicit rule that monetary fines are non-deductible. The legal situation was therefore unclear before the BFH decision.

Facts of the case

A limited partner in a GmbH & Co. KG transferred part of her limited partnership interest as a gift to her son. The partnership lawfully determined the value of the transferred share in the business assets for the requested declaration of determination by using the simplified income-based valuation method. The tax office initially established the value of the share in the business assets as declared at approximately EUR 4.5 million.

Only during a later tax audit did it become apparent that the operating results had been reduced by cartel fines amounting to millions. For fines already assessed but contested, as well as for further expected fines, the company had recognized corresponding provisions. The tax office treated the fines as extraordinary expenses within the meaning of Section 202 BewG, which must be added back to the base operating results and thus neutralized when determining the operating results. Price-fixing and other competition-restricting agreements are prohibited, and therefore corresponding cartel fines do not belong to ordinary business operations. The income value thus increased to around EUR 7 million.

The GmbH & Co. KG, by contrast, argued that the expenses were neither unusual nor rare and therefore not extraordinary. The cartel fines were rather a consequence of its ordinary business operations, namely the sale of certain products at agreed prices. Comparable expenses were also to be expected in the future. Since they were based on a multitude of anti-competitive transactions, they lacked singularity. However, it was unsuccessful with this argument in the objection proceedings, before the tax court and before the BFH.

Decision by the BFH

Extraordinary expenses as well as extraordinary income are not defined in the BewG. These indeterminate legal terms must therefore be interpreted accordingly.

According to the wording, "extraordinary" means something that deviates from the usual, i.e., is unusual or takes place outside the ordinary order. A cartel fine does not usually arise from business activity, but sanctions behavior that is outside the legal, i.e., the ordinary order. It therefore constitutes an extraordinary expense. Moreover, the base value of the income-based valuation method is to be adjusted for decreases and increases in assets that do not affect the sustainably achievable annual income for the future and are therefore not representative, as they will probably not recur. A fine specifically aims to prevent the unlawful behavior and thus the sanction from recurring. Therefore, it cannot have predictive value for future income.

For the classification as an extraordinary expense, it is ultimately irrelevant whether the business model that presupposes cartel violations, the concrete price agreements, the number of companies involved or the duration of the cartel are present. That the price agreements probably increased income does not — unlike the fine — lead to a correction of the income value.

Note

Only a few taxpayers will assert in court that large fines due to regular and also in future to be expected legal violations should be taken into account as value-reducing items in the simplified income-based valuation method. Nevertheless, the importance of the judgment goes beyond the individual case. The BFH has interpreted the concept of extraordinary expenses — and indirectly also that of extraordinary income — in the sense of Section 202 BewG in a generally binding manner. Thus, the decision provides greater legal certainty in this respect. The clarification that "extraordinary" is not synonymous with "rare" is particularly relevant. Expenses and income that occur repeatedly or are expected to recur in the future can also be extraordinary if the other conditions named in the judgment are met.