Draft regarding the Act to Amend the Real Estate Transfer Tax Act

Background

The Act on the Modernisation of the Law on Partnerships of 10 August 2021 (Personengesellschaftsrechtmodernisierungsgesetz, “MoPeG”) provides for the abolition of the joint ownership concept (gesamthänderische Bindung) for partnerships as of 1 January 2024. As the joint ownership concept was the reason for the different treatment of partnerships and companies in the civil law based system of German real estate transfer tax (Grunderwerbsteuer, “RETT”) thus far, the MoPeG also requires changes to the German Real Estate Transfer Tax Act (Grunderwerbsteuergesetz, “GrEStG”).

Against this background, the Federal Ministry of Finance (Bundesministerium der Finanzen, “BMF”) has now published a discussion draft of a law amending the Real Estate Transfer Tax Act (Grunderwerbsteuer-Novellierungsgesetz, “GrEStNG”) in order to neutralise the provisions of the GrEStG with respect to legal forms. The discussion draft also provides for adjustments to the GrEStG aimed at preventing tax avoidance through structuring measures and the elimination of restructuring obstacles caused by RETT.

The GrEStNG shall come into force on 1 January 2024 and includes the following amendments, among others:

Share deals

Pursuant to the current German RETT rules, RETT is, inter alia, triggered if at least 90% of the interests in a partnership or shares in a company, which directly or indirectly hold German real estate, are transferred or unified within a ten year period (cf. section 1 (2a) and (2b) GrEStG).

According to the proposed new rules, the above-mentioned rules shall be abolished and replaced by rules stating that acquisitions in real estate owning entities (companies and partnerships) shall only be subject to real estate transfer tax if all shares or interests (100%) are directly or indirectly unified in the hands of one acquirer or a number of acquirers acting as an “acquisition group”.

The shareholding thresholds and periods shall be replaced by the following legal concepts: “acquisition group” and “serving interest”.

An acquisition group exists if at least two persons jointly acquire the entirety of the shares in a real estate holding entity on the basis of coordinated legal transactions or coordinated transfers.

In determining whether all shares or interests in a real estate owning entity are unified in the hands of one acquirer or an acquisition group, certain shares or interests in real estate owning entities shall not be taken into account. This concerns own shares as well as shares or interests held by persons who do not belong to an acquisition group but who hold or acquire the shares or interests in the interest of the acquirer or at least one member of an acquisition group (“serving interest”). The concept of serving interest is intended to cover, for example, cases in which shareholders retain shares in order to avoid a transfer of all shares and receive compensation for this or if a shareholder accepts restrictions of his shareholder rights. These retained shares are then effectively treated as own shares of the real estate owning entity and are not taken into account when determining whether the acquirer acquires all shares in the real estate owning entity. Thus, a unification of all shares may also exist if less than 100% of the shares are transferred. The discussion draft contains further examples of coordination and serving interest.

The departure from fix shareholding thresholds and holding periods and the unclear legal concepts of “acquisition group” and “serving interest” are likely to create a lot of uncertainty. It is not yet possible to foresee the extent to which there will still be structuring potential for a RETT-free transfer of real estate companies in the future.

Restructurings

The previous tax exemption for group restructurings shall become broadened to all restructurings where the determining influence over the real estate does not change.

Unit deals

Pursuant to the proposed new rules, real estate may now also be attributed to contractual investment funds (Sondervermögen) and contractual investment funds may be real estate entities. This is intended to prevent so called “unit deals” which aim to avoid RETT using transfers of units in contractual funds for real estate transactions instead of companies or partnerships.

Notification requirements

Furthermore, according to the GrEStNG, the period of notice for transactions subject to RETT shall be extended from two weeks to one month.