Increased risk of double taxation in share deals

  • 01/20/2023
  • Reading time 3 Minutes

With the publication of the Annual Tax Act (JStG) 2022, the new Section 16 (4a) Real Estate Transfer Tax Act (GrEStG) came into force. Although the provision is intended to avoid double taxation of an acquisition of shares (share deal) with real estate transfer tax, it also entails new risks.

The reason for this was the controversial "signing-closing" opinion of the tax administration. This states that in the case of share sales of real estate-owning companies, where the signing and the closing of the deal occur at different times, there are two separate transactions that are each subject to Real Estate Transfer Tax (“RETT”).

This is how double taxation of share deals is meant to be avoided
The new Section 16 (4a) GrEStG is a procedural norm that is intended to legally regulate the avoidance of (undesired) double taxation. Accordingly, a tax assessment made with regard to the signing under Section 1 (3) or (3a) GrEStG is to be revoked or amended upon application if the shares in the company are transferred to the purchaser (closing) and a RETT taxable event under Section 1 (2a) or (2b) GrEStG is thereby realised. However, according to Section 16 (5) sentence 2 GrEStG, the transfer of shares in the company is effectively only taxed with RETT once if a notification in accordance with §§ 18 to 20 GrEStG has been made in due time and complete in all parts both at the signing and at the closing.

These challenges arise in practice
Particularly in the case of international structures, the parties obliged to notify and the deadlines for such notifications may differ. If, for example, a foreign corporation acquires (directly or indirectly) 100% of a German real estate owning corporation, the foreign corporation would be obliged to notify the transaction within one month of signing. In the case of closing, however, the German real estate owning corporation would be obliged to notify the tax authorities within a period of 14 days, even if it has or had no knowledge of the tax liability.

Risks and practical advice
In group structures it is important to recognise, if an acquisition indirectly leads to a transfer of a real estate-owning company, and to report it in due time and in full. In particular, if there is a longer period of time between signing and closing, the duty of notification must be observed in order to avoid double taxation. Due to the required timely notifications, it is likely that a RETT double taxation will occur, if the taxability of the transaction is only recognised in the course of a (later) tax audit, as any notification deadlines likely had passed already. 

It should also be noted that Section 16 (4a) GrEStG was introduced without a transitional provision and thus, in principle, also applies retroactively to matters that are still open. Taxpayers affected by this should consider defending themselves against this by means of an objection or appeal.

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Author of this article

Markus Cullefors


Attorney-at-Law (Rechtsanwalt)

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