04.03.2015BFH confirms tax deductibility of RETT
The BFH has confirmed that real estate transfer tax (RETT), triggered upon the acquisition of at least 95% of the interest in a real estate-owning partnership, is an immediately deductible business expense for income tax purposes.
The Federal Tax Court (BFH) issued a decision dated 4 December 2014 concluding that the real estate transfer tax (RETT) may be deducted from the income tax base as an immediate business expense.
The direct or indirect acquisition of at least 95% of an interest in a partnership that owns German real estate triggers RETT. The rationale underlying the levying of RETT in such a case is that the real estate is deemed to have been transferred to a new partnership. The taxpayer for RETT purposes is the partnership itself.
The case involved a situation where the acquisition of 99.98% of the interest in a real estate-owning partnership triggered RETT, which was paid by the partnership.
From a German income tax perspective, the acquisition of an interest in a partnership is treated as a (partial) acquisition of the assets that are owned by the partnership (“asset deal”). The tax authorities held that the RETT must be capitalized as incidental acquisition costs of the underlying acquired assets. Consequently, the RETT could be deducted from the taxpayer’s income tax base only by way of depreciation of the underlying assets. The taxpayer claimed an immediate deduction of the RETT.
The BFH, however, held that the RETT does not have to be capitalized, but may be deducted from the income tax base as an immediate business expense. The deemed transfer of the real estate to a new partnership for RETT purposes does not correlate with the treatment of the acquisition of the partnership interest from an income tax perspective, such that capitalization as incidental acquisition costs is not required.
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