The acquisition of shares in landowning corporations or partnerships (share deal) in Germany is going to be critically examined regarding the land transfer tax (Grunderwerbsteuer). This was decided by the state finance ministers during the conference of finance ministers at the beginning of September.
The background of this decision is the accusation of the state finance ministers that the real estate industry often would use the present 95 percent provision for improper arrangements. As a result, the states would lose significant revenues of land transfer tax. Therefore, the state finance ministers agreed upon preparing proposals for a new regulation of the taxation of purchases of shares in real estate companies until mid-November.
It is not foreseeable whether or not or in which direction the new regulation will be initiated or implemented.
Background of the discussion
The land transfer tax is charged on legal transactions with the purpose of a transfer of real estate (sec. 1 (1) No. 1 Land Transfer Tax Act (Grunderwerbsteuergesetz (GrEStG)). The condition for the transfer is the transition of the economic utilization right on the property from the seller to the purchaser.
Pursuant to Sec. 1 (2a) and (3) GrEStG, the purchase is taxable if a property is owned by a partnership or a corporation rather than by a natural person and if the shares of the landowning partnership or corporation and not the property itself are transferred. The legislator considers this kind of transfer to be a transition of the economic utilization right on the property – which is decisive for the taxation. This applies only if a minimum of 95 percent of the shares (or the company assets) are held by one acquirer (sec. 1 (2a) sentence 1 or (3) No. 1 GrEStG).
In practice, the taxation of a share deal is often avoided by the acquisition of 94.9 percent of the shares in the landowning company. The purchasers thereby stay below the statutory threshold of a harmful acquisition.
(22 September 2016)