Application of the corporate group clause
Under the so-called corporate group clause in Section 6a GrEStG, legal transactions as part of reorganisations (pursuant to Section 1(1) no. 3, (2a) or (3) GrEStG, in principle, taxable events such as demergers, carve-outs, spin-offs and asset transfers) are exempt from RETT. The tax exemption requires the reorganisation transaction to involve only one controlling company and one or more enterprises that are dependent on one controlling company. Within the meaning of the provision, an enterprise would be deemed here to be dependent on the controlling company if, for five years prior to and five years following a legal transaction (so-called prior and subsequent holding periods), the controlling company had continuously owned (directly or indirectly and/or partly directly, partly indirectly) a stake in this enterprise of at least 95%.
Please note: Following a request from the BFH, the ECJ ruled that the tax concession from Section 6a GrEStG does not constitute state aid that violates EU law (ECJ ruling from 19.12.2018, case: C-374/17, A-Brauerei).
The opinion of the fiscal authority (set out in an identical decree of the federal states from 19.6.2012) is that for a specific reorganisation transaction the respective “association”, consisting of the controlling company and the dependent enterprise(s) involved in the reorganisation, has to be determined. Under Section 6a GrEStG, reorganisation transactions through which such an “association” is either established in the first place or terminated are not eligible for tax concessions. Moreover, the fiscal authority strictly insists that the controlling company has to observe the prior and subsequent holding periods relating to its stake(s) in the dependent enterprise(s).
Basic applicability of Section 6a GrEStG
In one of the rulings from 21 and 22.8.2019 (the case references are II R 15/19 to 21/19) the BFH argued against the fiscal authority’s restrictive interpretation of the concept of a corporate group (“association”) and clarified that, under Section 6a GrEStG, both horizontal as well as vertical mergers should be eligible for tax concessions.
The BFH expressly accepted the applicability of Section 6a GrEStG to reorganisation transactions where the new legal entity emerges, e.g., as a result of a spin-off/carve out from the controlling company, or the legal entity ceases to exist as a result of merging with the controlling company.
Observing the holding periods
Furthermore, in the above-mentioned rulings, the BFH examined the prior and subsequent holding periods, under Section 6a GrEStG, in various constellations. According to this, the holding periods have to be observed to the extent that, based on the purpose of the provision on tax concessions for reorganisation transactions, it is possible to observe them at all and specifically in the following cases.
(1) The merger of a dependent enterprise into the controlling company – here, the controlling company making the acquisition has to comply with the 5-year prior holding period requirement. The 5-year subsequent holding period requirement (that cannot be met) will be obsolete because the dependent enterprise will cease to exist after its merger.
(2) The merger of a dependent enterprise into another dependent enterprise – here, the controlling company has to comply with the 5-year prior holding period requirement with respect to both dependent enterprises. Here, the controlling company will have to comply with the 5-year subsequent holding period requirement solely with respect to the dependent enterprise making the acquisition. The subsequent holding period requirement will be obsolete because the other dependent enterprise will cease to exist after its merger.
(3) Spin-off by the controlling company to form a dependent enterprise – here, the controlling company carrying out the spin-off transaction has to comply with the 5-year subsequent holding period requirement. The 5-year prior holding period requirement will be obsolete in view of the formation of the dependent enterprise that will emerge as a result of the spin-off transaction.
(4) Carve-out by the controlling company to form a dependent enterprise – here, the controlling company carrying out the carve-out transaction has to comply with the 5-year subsequent holding period requirement. The 5-year prior holding period requirement will be obsolete in view of the formation of the dependent enterprise that will emerge as a result of the carve-out transaction.
In view of the BFH rulings and, thus, the broad interpretation of Section 6a GrEStG, the following intragroup restructuring measures, in particular, will be tax-exempt:
- The merger of a 100%-owned property-owning subsidiary into the parent company in the course of an upstream merger.
- A parent company merging two 100%-owned property-owning subsidiaries with each other.
- Carving out of a branch of activity, including property, by a 100% parent company in order to set up a new affiliated company in this way.
- Spinning off a branch of activity, including property, by a 100% parent company in order to set up a new affiliated company in this way
Conclusion: The intention of the legislators behind Section 6a GrEStG was to make restructuring simpler. Subsequently, the fiscal authority, through its restrictive interpretation of this provision, placed considerable limits on the applicability of the tax concessions. This is not compatible with the intention and purpose of the provision, namely, to make intragroup restructurings simpler. Therefore, the BFH rightly rejected, in every respect, the fiscal authority’s restrictive view on the interpretation of the provision. The fiscal authority will now have to radically revise its administrative guidance in order to meet the requirements of the legislation once again.