Real Estate Transfer Tax Law in Need of Reform
In principle, only transfers of domestic real estate are to be subject to real estate transfer tax. In order to also cover the (economic) transfer of real estate not held directly by natural persons but via companies or other legal entities, the legislator has created and continuously tightened extensive supplementary provisions for share transfers. In addition to the "rabbit and hedgehog" race between the legislator and tax practitioners caused by the reduction of the shareholding ratio relevant for real estate transfer tax, this has led to a large number of further interpretation problems and questions of doubt. Particularly in the recent past, legal uncertainties with regard to the allocation for real estate transfer tax purposes in multi-level shareholding structures and the recent discrepancy between the signing and closing transactions, which is relevant for real estate transfer tax purposes, have made it more difficult to deal with real estate transfer tax issues in practice. The German Federal Ministry of Finance has also recognized this and has now presented a discussion draft with fundamental changes to land transfer tax law.
Key points of the planned legislative changes
- Revision of the supplementary provisions: The previous provisions on detrimental changes of shareholders and share unions (Sec. 1 (2a) to (3a) GrEStG) will be deleted in their entirety and replaced by a uniform provision that is neutral in terms of legal form and that only taxes the unification of 100% of the shares in a real estate-owning company. The avoidance of real estate transfer tax by co-investors or other models that have been used up to now will be prevented by the terms "group of acquirers" and "serving interest", which deliberately require concretization. As a result of the planned new regulation, the previous minimum shareholding ratios of 90% and the ten-year periods previously applicable to changes in shareholders will no longer apply.
- Change in exemption provisions: Currently, in addition to the personal exemption provisions of Sections 3 and 4 GrEStG, which are not to be changed by the planned reform, real estate transfer tax law also provides for exemptions for transfers from, to and between real estate-owning companies. The previous exemptions (Sections 5, 6, 6a, 7 (2) GrEStG) are now to be replaced by a comprehensive tax exemption for restructurings, which exempts acquisition transactions from tax if either the determining influence over the real estate does not change or if persons remain involved before or after an acquisition transaction.
- Other changes: Other notable changes include, in particular, the legal clarification on the attribution of real estate to the company that acquired the real estate through an original acquisition transaction (i.e., not a supplementary transaction). In addition, for the first time it is also envisaged that the federal states will be authorized to apply only a reduced tax rate in the case of acquisitions of owner-occupied real estate by natural persons.
Outlook
A reform of real estate transfer tax law is urgently needed in view of the legal uncertainties outlined in the status quo. Against this background, it is to be welcomed that the Federal Ministry of Finance has taken a first step towards fundamental changes to the law with the published discussion draft. The key points of the planned changes to the law, which were drawn up in cooperation with the "Working Group on Real Estate Transfer Tax" consisting of representatives from business, research and administration, are particularly convincing due to the planned neutrality of the legal form and simplification effects of the new regulations. It remains to be seen whether and to what extent the planned reform will actually be incorporated into law.