BFH: Extension of the chain of shareholdings does not lead to any negative effects

In its decision of August 21, 2024 (II R 16/22), the German Federal Fiscal Court (“BFH”) decided when the extension of a chain of shareholdings by interposing a new company in a real estate-owning partnership leads to a “detrimental” change of shareholding within the meaning of Art. 1 (2a) GrEStG (German Real Estate Transfer Tax Act). The quite surprising decision raises new follow-up questions and at the same time opens up possible structuring options for the taxpayer.

Facts and clarification of “accumulating acquisition” in tax law

The judgment was based – in simplified terms – on the following facts: X-KG indirectly held a 100% interest in the plaintiff (a land-owning KG) via another KG. Several individuals held shares in X-KG. Two shareholders of X-KG contributed their shareholdings of 40 % and 20 %, respectively, in each case to an Italian S.r.l. (corporation).

The remaining shareholders (A and B) contributed the remaining 40 % limited partnership interest in X-KG to W-KG, which was held 50 % each by A and B. The tax office (“TO”) considered the contribution to W-KG to be a so-called “accumulating acquisition” (Zählerwerb) and accordingly assessed real estate transfer tax against the plaintiff in accordance with Art. 1 (2a) GrEStG because, in its opinion, there had been a change of shareholders of more than 95 % in the plaintiff. The action before the tax court (“TC”) was unsuccessful. The plaintiff appealed against the TC’s decision and claimed that the required quantity of 95 % accumulating acquisitions had not been reached, as W-KG was to be treated transparently as a partnership, which is why there was no accumulating acquisition in this respect and therefore no factual basis.

The BFH supports the plaintiff

The BFH followed the plaintiff's opinion. It justified this by stating that the transfer of the 40 % shareholding in X-KG did not constitute a transfer to a new shareholder within the meaning of Art. 1 (2a) GrEStG, as A and B continued to hold an indirect shareholding via W-KG. In particular, W-KG is not to be regarded as a new shareholder of the plaintiff either. The BFH justified this with the transparency of partnerships for real estate transfer tax purposes stipulated in the law, according to which multi-level partnerships have to be treated as transparent. Due to this transparency, the only relevant changes are those involving legal entities in which no shareholdings are possible under company law. An economic approach was decisive in this respect, which is why the mere interposition of a partnership in the chain of shareholdings does not mean that a new shareholder enters the chain.

Possible impact on taxpayers and tax authorities

The BFH made no statement in the decision as to whether the transfer to the corporations (S.r.l.) constitutes accumulating acquisition, as this was not relevant to the decision in this case. However, in view of recent case law (BFH decision of July 31, 2024 - II R 28/21), it can probably be assumed that the BFH generally considers corporations to be non-transparent and that an interposition would therefore be detrimental for the purposes of Art 1 (2a) GrEStG.

However, if there is a direct change of shareholder in the partnership, this still does not apply, and the matter must be considered from a purely civil law perspective.

The decision could open up new scope for structuring, although it remains to be seen what position the tax authorities will take on the decision. Taxpayers should carefully analyze comparable constellations in order to avoid triggering real estate transfer tax in case of doubt. It is also important to review the history of previous share transfers.