Administrative opinion on signing and closing
Insofar as a corporation holds real estate, in the event of a sale of company shares (share deal) there will basically be two points of reference with respect to a corporation’s real estate holdings that could trigger RETT:
- The date on which the transaction imposing a legal obligation is concluded (the so-called signing) normally triggers RETT under Section 1(3) or (3a) GrEStG.
- The performance part of a contract (so-called closing) normally triggers a taxable event under Section 1(2) or (2a/2b) GrEStG.
The legislation provides that Section 1(2) or (2a) GrEStG take precedence over Section 1(3) GrEStG. What this actually means is that, in such cases, RETT should generally only be determined for the closing event. However, the fiscal administration assumes that the provisions concerning a signing event and a closing event relate to parallel applicable events that generate a RETT liability insofar as – in practice, in the vast majority of cases – the signing and the closing do not coincide. Consequently, when this opinion is adopted in the case of share deals, RETT is generally incurred twice.
Now, this is not a new problem and, in practice, it has hitherto been resolved by the fiscal administration determining RETT solely for the signing event if the closing has not taken place within a year of the administration learning of the transaction. Although, this is merely an administrative instruction and not a legal provision.
New legal provisions
In the 2022 JStG, the lawmakers created a very formalistic solution that will now be applied in the above-mentioned problem area. The introduction of Section 16(4a) GrEStG provides for the legally mandated cancellation of an event that generates a RETT liability in the case of a signing circumstance if the transaction has been closed and, therefore, an event that generates a RETT liability under Section 1(2a) or (2b) has taken place. According to this, in the case of a share deal, the RETT should generally be incurred only once. If the RETT had previously already been determined for the signing event then this assessment would have to be cancelled.
However, a highly problematic practical implication is the further requirement, set out in Section 16(5) sentence 2 GrEStG, which was likewise introduced via the 2022 JStG. According to that, the RETT for the signing event would only be retroactively cancelled if the required notifications associated with the signing have been made in due time and in full. If, for example, a complete report of the event that generates a RETT liability is not received by the local tax office within two weeks after the signing then, under the new legislation, there would be a risk of double taxation in respect of RETT. Given that, in such a case, this would usually involve high-priced real estate in business assets there would be a latent risk of a high six-figure tax demand.
Recommendations: If the companies that are acquired hold real estate then it would be important to ensure that the notification deadlines of two weeks are complied with. Yet, this can pose a particular practical challenge because, in the case of a share deal, the acquirer would be obliged to submit a report even though, frequently, at that juncture the requisite information with the sufficient level of detail would not be available. In this respect, it is important to address the problems already during the purchase price negotiations in order to be able to comply with the deadlines.