Ministry of Finance discussion draft proposes amendments to share deals under RETT Act

Discussion draft must be approved by federal states prior to legislative process

A working group on the real estate transfer tax (RETT) law at the University of Leipzig presented a proposal to Germany’s Ministry of Finance (MOF) on the modernization of the RETT law. The MOF edited the proposal on 15 June 2023 and then presented a discussion draft of a bill to amend the RETT Act to the federal states for approval. This is not yet official draft legislation, but rather a working draft subject to approval by the federal states, after which it will go through the legislative process.

The discussion draft for amendment of the RETT Act includes the following measures:

• The various RETT rules for share deals, which include a 90% ownership threshold and a 10-year monitoring period, would no longer apply;
• A distinction would no longer be made between corporations and partnerships;
• A legal definition of a real estate-owning company would be introduced;
• There would be only one RETT rule for share deals, which would be that acquisitions in a real estate-owning company would be taxed upon unification of the entirety of the shares, i.e., direct or indirect consolidation of 100% of the shares in the hands of one acquirer or a group of acquirers;
• Several acquirers of shares would be taxed as an acquisition group if they have coordinated their acquisitions with each other and jointly acquire the entirety of the shares in a real estate company, directly or indirectly (e.g., co-investor cases);
• Shares held or acquired by a third party in the "serving interest" of the acquirers would be disregarded and attributed to the acquirers, which would ensure taxation in cases where an acquirer or an acquisition group combines less than 100% of the shares, but the other shares are held for their benefit so that they have a similar economic position as if they had combined the entirety of the shares;
• In addition to cases in which the shareholder has limited shareholder rights or receives fixed compensation or minimum compensation as a result of the shareholder position, a serving interest would be assumed if the sum of the fair market value of the shares held by the person is less than the RETT that would arise if the shares were combined in the hands of one acquirer or group of acquirers;
• Special assets of open-ended real estate funds would be included in the taxation under a rule where a real estate-owning company (or an intermediary company) would be a special fund within the meaning of section 1 (10) of the Investment Code (or a comparable investment fund in the form of a contract under foreign law) if real estate (or shares in a real estate-owning company) are attributable to the special fund;
• The previous RETT exemptions for partnerships also would apply to corporations;
• All intragroup transactions, such as share transfers and direct transfers of real estate, would be exempt from RETT, provided that in the group is a shareholding structure of 100% and that after the restructuring all the shares of the real estate-owning entities and the real estate continue to be in the group;
• Tax debtors of the RETT would be the acquirer, the acquisition group, and, in case of an indirect unification of shares, the intermediary companies;
• The real estate-owning company would be liable for the RETT (along with in rem liability of the real estate);
• The real estate-owning company would be liable for the RETT if the tax debtors did not duly notify the tax authorities of the acquisition transaction;
• The RETT notification deadline for resident tax debtors would be extended from two weeks to one month; and
• There would be an obligation to transmit RETT notifications electronically and according to an officially prescribed dataset with mandatory content.

The proposal could be effective as from 1 January 2024. The actual scope and timeframe of any legislative changes could be officially published as early as the second half of 2023.