German Real Estate Transfer Tax (RETT) law treats the owner of at least 95% of the shares in a corporation or partnership as if it owns the real property of the corporation or partnership through the unification of shares in its hands, or in its hands and that of related parties. As a result, RETT is triggered upon unification. Furthermore, a direct or indirect change of ownership in a real estate holding partnership of at least 95% within a five-year period is regarded as a RETT triggering event. In both instances, special share and interest transfers are treated as fictitious transfers of real estate and, therefore, as taxable events for RETT purposes.
The treatment of RETT for income tax purposes has been widely disputed in tax technical literature. Since 2007, the tax authorities have issued decrees in which they have taken the position that, in the case of a unification of shares, RETT should be treated as part of the acquisition cost of the shares and, in the case of an essential change of partners in a partnership, RETT should be treated as an acquisition cost for the real property. These decrees were based on a decision of the Finance Court of Munich in a case involving a unification of shares in the hands of a single owner. However, this decision has not been confirmed by the Federal Tax Court.
A recent decision of the Finance Court in Düsseldorf confirms the view of the Finance Court of Munich even when the shares in a real estate owning company are not unified in the hands of a single owner, but rather in the hands of a group of related companies (so-called fiscal unity for RETT purposes). The decision was challenged by the taxpayer and will now be reviewed by the Federal Tax Court (BFH). The final decision will be of broad significance in practice.
Ansprechpartner
Dr. Bettina Lieber | Düsseldorf
Petra Peffermann | Frankfurt
