Excessive purchase price - Possibility of double taxation?
When a property is sold to a related person it is not uncommon for there to be deviations from the usual market price. In a dispute, a tax court had to rule on whether the excessive purchase price could be subject to both real estate transfer tax as well as gift tax.
A lower price can be conceded for personal motives, while an excessive purchase price can result from specific donations. The tax court (Finanzgericht, FG) in Mecklenburg-Western Pomerania, decided on the latter case in its ruling of 19.9.2023 (case reference: 1 K 233/22).
In the case in question, ‘A’ was the shareholding managing director of a GmbH [German private limited company]. On 24.2.2011, ‘B’, who was A’s life partner, sold a plot of land with a commercial building to the GmbH at a purchase price of €1,100,000. In its notice of 30.6.2011, the local tax office stated the assessment for real estate transfer tax for the GmbH. The notice became final and absolute. The local tax office issued a gift tax assessment notice to B that also became final and absolute. It was assumed there that the value of the property was just €480,000 and that the amount in excess of this up to the purchase price was a gift. The local tax office refused to change the real estate transfer tax by reducing it.
The legal action before the FG was successful. To the extent that the purchase price had exceeded €480,000, it had been taken into account twice for tax purposes. The differential amount was taken into account, finally and absolutely, in the gift tax assessment notice as a gift from A to B. The same amount was however also subjected to real estate transfer tax, to this extent thus the same (specific) situation that should have been taken into account just once. The differential amount can only constitute either a generous gift or consideration for the property, but not both at the same time. The contracting parties concurred that the agreed purchase price significantly exceeded the value of the property. According to the FG, just because the amount of €1,100,000 was stated in the agreement as the purchase price this does not mean that the unreasonable portion of the purchase price should be directly included in the consideration for the purposes of real estate transfer tax.
