The coalition agreement of 14 March 2018 between the CDU/CSU and SPD already provided for the restriction of certain arrangements to avoid real estate transfer tax (GrESt) by means of share deals. On the Conference of Finance Ministers on 21 June 2018 tightening of the Real Estate Transfer Tax Act was proposed, which is now to be implemented as part of the Annual Tax Act 2019, a typical omnibus bill. The key tightening measures can be summarised as follows:
- Lowering the relevant real estate transfer tax participation limit of 95% to 90% for share transfers
- in the case of property-holding partnerships, to new shareholders within (currently still) five years (cf. Section 1 (2a) GrEStG) and
- in the case of mergers of shares in real estate holding partnerships and corporations (Section 1 (3) GrEStG)
- Extension of the relevant (Holding) periods of the company shares from five to ten years for property holding companies.
- Introduction of a Substitute offence for real estate holding corporationsn, so that a change in the shareholder structure of at least 90% within ten years also triggers real estate transfer tax.
In doing so, the legislator is aiming to minimise typical company law structures that we have already described in our TXGT news from 10.07.2018 described above. These corporate law measures (e.g. staggered acquisition, club deals for corporations) are currently of great practical importance when structuring transactions with landowning companies.
The planned changes and their expected effects are summarised briefly:
- In the case of staggered acquisition of shares in landowning companies Partnerships the restriction of Section 1 (2a) GrEStG [as amended] would have to be observed in future. Accordingly, a share transfer of at least 90% within ten years to new shareholders already trigger real estate transfer tax. Corresponding arrangements to avoid or reduce the real estate transfer tax burden would therefore have to take a much longer period of time.
- At "Club Deals" with shares in landowning companies Corporations is in future § Section 1 (2b) GrEStG would be applicable and the ten-year period would have to be observed. Previously common arrangements with an independent co-investor would then no longer be advantageous.
The stricter regulations are intended to Acquisition transactionswhich after 31 December 2019 are realised, apply. The lowering of the participation thresholds and extension of the deadlines is also relevant for legal transactions in the past. This is because, for example, for those who have the status of a new shareholder on 01.01.2020 within the meaning of sec. § Section 1 para. 2a GrEStG current version, the extended deadline of 10 years should apply. It is already foreseeable that the transitional provisions will be highly relevant in practice, as the legislator clearly wants to avoid generous transitional provisions. The current draft of the Annual Tax Act provides for 8 paragraphs for the transitional provisions, which clearly illustrates the high complexity of the transitional provisions.
Property developers, portfolio holders and investors should therefore consider the planned changes at an early stage and bring forward planned transactions if necessary. In addition, the effects on contracts that have already been concluded should be analysed and appropriate measures possibly taken. This also applies to transactions that took place some time ago, which could be affected despite grandfathering and the ban on retroactive effect.
Yours TAXGATE team will be happy to provide you with further information at any time.
