Real estate transfer tax – Federal state decrees on property attribution published: Multiple attribution possible
In response to the German Federal Tax Court’s (“BFH”) most recent case law according to which the Court defined the principles for the attribution of real property for real estate transfer tax (“RETT”) purposes in connection with the alternative requirements pursuant to Art. 1 (2a) to (3a) GrEStG (German Real Estate Transfer Tax Act), the tax authorities have now presented their view on the subject in their coordinated state decrees dated October 16, 2023.
The property attribution for RETT purposes determines when a property is attributed or “belongs” to a company for the purposes of the alternative requirements pursuant to Section 1 (2a) to (3a) GrEStG, whereby such attribution is not based on either civil law or Art. 39 of the German General Tax Code (“AO”). In addition to the real properties’ attribution to the owner under civil law, the real property can also “belong” or be attributed to other companies in the chain of ownership for the purposes of the alternative requirements, even though they are not the owners of the real property under civil law. The question of the real property attribution is primarily relevant in the context of share deals and intra-group restructurings.
The tax authorities hold the view that the same plot of land can be attributable to several companies if the respective companies have previously met the requirements pursuant to Art. 1 (3) or (3a) GrEStG. In the tax authorities’ opinion, this can lead to the fact that transfers of shares at different levels of a shareholding chain might be subject to RETT more than once, although, in economic terms, there is only one single transfer of a real property. This is particularly relevant for transactions relating to multi-level shareholding chains. Whether this view, which can lead to double or multiple taxation of the same legal transaction, actually interprets case law and the law correctly is highly doubtful and should be promptly clarified by the supreme court.
In addition, the new decrees link the question of attribution to the controversial “signing/closing theory” (see Increased risk of double taxation in share deals). According to this theory, the tax authorities assume that a sale of shares where the date of the transaction imposing a legal obligation and the date of fulfillment in rem do not coincide will be subject to double attribution (attribution to the acquirer due to the realization of Art. 1 (3) GrEStG, continued attribution to the target company owning the real estate). If the tax triggered upon signing (Art. 16 (4a) GrEStG) will be eliminated, such double attribution is not supposed to cease but should continue to exist.
If an acquisition is reversed, the attribution only ends at the time at which the claim for annulment of the assessment or determination of the tax bases pursuant to Art. 17 GrEStG arises or, in cases of Art. 16 (2) GrEStG, as soon as the legal transaction triggering the tax for the repurchase is concluded.
The coordinated decrees are to be applied to all pending cases, i.e., transactions and structures that have already been completed may also be affected.
This has the following consequences for (potential) taxpayers:
- In the context of share purchase agreements for companies owning real estate, it should be checked whether transactions relevant to real estate transfer tax have occurred in the past with regard to the target company. Any identified tax risks should be contractually hedged.
- The decree confirms the already expressed fears according to which the introduction of Art. 16 (4a) GrEStG has significantly increased the risk of double taxation. This can only be avoided with legal certainty through complete and timely notification in accordance with Art. 19 and 20 GrEStG. Accordingly, precautionary notifications will be required at different levels in future, and the review of individual companies’ notification obligations can no longer (only) be based on the organizational chart and the allocation of the properties under civil law.
- Measures that have already been completed and in which land-owning companies were (indirectly) involved should also be reviewed in order to determine whether, according to the view now expressed by the tax authorities, RETT notification obligations have been completely fulfilled or whether further or amended notifications need to be made. The notification period of 2 or 4 weeks from becoming aware of such requirement must be observed.
- If, in the opinion of the tax authorities, there is double or even multiple taxation of the same property and share transaction at several levels of the multiple attribution, an objection should always be filed as a precautionary measure.