Real Estate Transfer Tax in Restructuring and Company Acquisitions (Part I)

​​published on 10 February 2022 | reading time approx. 4 minutes

The Real Estate Transfer Tax Act covers not only the direct sale of a real property (by way of an “asset deal”), but also the transfer of shares in the real estate holding companies as part of the sale of company. Likewise, a reassignment of companies holding real estate within a group may trigger real estate transfer tax. In the case of transactions and restructuring measures involving real estate holding companies (by way of a “share deal”), this issue should therefore be considered already at an early stage before the contracts are signed, in particular in order to avoid double or multiple real estate transfer tax liability.

Overview of the facts relating to real estate transfer tax in the event of a change in the shareholder structure  

The Act Amending the Real Estate Transfer Tax Act (the so called Share Deal-Reform), which came into force on 1 July 2021, has resulted in particular in new regulations concerning the movement of shares in real estate holding companies (share deal). Facts concerning real estate transfer tax in the case of a change in the structure of partners in partnerships (PersGes) or shareholders in corporations (KapGes) are as follows:

(For an optimal display of the table, the use of a desktop PC is recommended.)

At the same time, the previous regulations must also be applied if the 90% quota had already been reached before the amendments came into force, but not the previously applicable 95% threshold:

The “changed circumstances” laid down in § 1 Sec. 2a and 2b GrEStG trigger tax obligation for a (direct and/or indirect) change in the shareholder structure for at least 90% of the shares in the company's assets or equity within a period of ten years. In the case of indirect changes, it is often debatable and difficult to specifically determine when the threshold has been reached: If the respective shareholder is a partnership, indirect changes are considered on a pro rata and a “flow-through” basis; in the case of corporations, a movement is not deemed to have occurred until a 90% change is reached indirectly – but when it is, then in the full amount (“all-or-nothing principle”).

Pursuant to the stock exchange clause § 1 sec. 2c GrEStG, transfers of shares in listed corporations are in most cases not considered when determining the aforementioned shareholding quotas. Transfers on account of death are irrelevant anyway – unlike donations, which may be exempted from tax but initially trigger tax obligation.

Both corporations and partnerships can also be affected by the “unification-related” circumstances” laid down in § 1 sec. 3 and 3a GrEStG. In this context, tax obligation arises if a buyer (directly and/or indirectly) holds at least 90% of the shares in the company holding the real estate. Also here, the specific calculation and attribution may vary depending on the facts of the case and the legal form of the company.

Special aspects of restructuring within the group

The Share Deal-Reform has not brought about any changes in the so-called group clause as per § 6a GrEStG. This exemption provision is often helpful in the case of restructuring within the group. According to this provision, no real estate transfer tax is levied in particular if:

• ownership of real estate is transferred by operation of law (but not on the basis of an ordinary real estate purchase or contribution agreement) or a share-related acquisition transaction (see table above), the transaction is based on a merger, demerger or spin-off under the German Transformation Act [Umwandlungsgesetz, UmwG], a contribution or another acquisition transaction on the basis of articles of association (the latter only in the case of share transfers, not in the case of real estate transfers); and
• one controlling entity and one or several dependent entities or several entities being dependent on a controlling entity are exclusively involved in the legal transaction;
• In addition, which is somewhat difficult to understand, in their decrees, the tax authorities  require companies to be a “business activity”, which should, however, be fulfilled as a rule, at least in the case of operationally active companies.

A company is presumed to be “dependent” if the controlling entity (partly) directly or indirectly held or holds with no interruptions at least 95% of the capital or business assets of the company for five years prior to and five years after the legal transaction. This period and the shareholding quota have not been changed by the share deal reform, so that in future there will no longer be any convergence between taxability (at 90%) and the requirements for a preferential group shareholding (95%). However, the advantage is that the pre- and post-transaction holding periods have not been extended to 10 years, in contrast to the exemption provisions of §§ 5 and 6 GrEStG, which are only applicable to partnerships, where the holding periods are now 10 or even 15 years. This means that in future, § 6a GrEStG may be an attractive structuring option also for a GmbH & Co. KG, for which the less complex exemptions under §§ 5 and 6 GrEStG have generally been applied for restructuring purposes.

Continuation in the next issue

This article will be continued in the next issue featuring changes in tax liability and special aspects of disclosure obligations.