The German legislature recently passed a bill that set out to amend the Stock Corporation Act and to make it more attractive to issue convertible bonds and, in particular, preference shares. This article investigates the current and new corporate law provisions regarding convertible bonds and preference shares in Germany and their tax treatment. While the new corporate rules enhance the versatility of the two instruments and the legal flexibility of the issuing company, the tax consequences regarding convertible bonds must be considered very carefully due to the recent German jurisprudence.