Bundestag’s resolution recommendation adopted
RETT can be triggered when shares in companies that, directly or indirectly, hold property are transferred. In practice, through the use of appropriate structures, it is possible to mostly avoid RETT when shares in companies that hold property are transferred (‘share deals’). On 23.9.2019, a governmental draft was issued with the aim of curbing particular structuring methods in the RETT arena. Then, on 14.4.2021, the Finance Committee made a resolution recommendation to the Bundestag, which followed this on 21.4.2021. The core elements are:
- the introduction of a new supplemental taxable event (Ergänzungstatbestand) for corporations;
- the lowering of the shareholding threshold from 95% to 90%;
- the extension of the time limits to 10 years or 15 years.
The threshold is 95% for share deals under the current law
Basically, a share deal is a frequently deployed method for avoiding RETT in the case of property transactions. Under current law, no RETT is due if less than 95% of the shares in a company that holds property are transferred. However, if at least 95% of the shares are transferred then a distinction has to be made between a company that owns property and a property-owning partnership. In the case of corporations, in practice, a lead investor frequently acquires only 94% of a property-owning company and a co-investor the other 6%; RETT would not be incurred here. Therefore, it is possible to transfer all the shares at the same time, although not all of them may be acquired by the same person.
Please note: In the second step, the shares may not be transferred to the same investor who had already acquired shares in the first step. If this were indeed to be the case then this would trigger RETT in respect of all the shares because the taxable event of ‘unification’ of at least 95% of the shares ‘in a single holding’ would be deemed to have occurred.
The new legislation will bring tightening
According to the draft law, as of 1.7.2021, the distinction between a company that owns property and a property-owning partnership will no longer be made. Furthermore,
- the threshold that triggers RETT will be lowered from 95% of the shares to 90% and
- the blocking period during which acquisitions of shareholdings have to be added together will be extended to 10 years.
Irrespective of the legal form, it will then only be possible to transfer a maximum of 89.9% of the shares within a period of 10 years without incurring RETT. When the threshold of 90% is exceeded within the time limit then a property purchase will be simulated and RETT will arise and be based on the overall value of the property.
Another significant change has arisen for property-owning partnerships with respect to the non-levying rule under Section 6 GrEStG. Up to now it has been possible to transfer, without incurring RETT, properties from one set of joint assets to another where the shareholders are the same people if the respective property had been owned by the respective company for five years before and subsequently. In the future, the prior holding period requirement for the transferring company will be 15 years.
Recommandation: While, up to now, it has been possible to transfer up to 94.9% of shares, as of 1.7.2021 it should absolutely be ensured that, in total, no more than 89.9% of the shares are transferred. Otherwise, RETT will be charged on the transfer for both corporations and partnerships.