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Movement in the amendment of German Real Estate Tax Act

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Inicio Perspectivas Movement in the amendment of German Real Estate Tax Act
The project had been on hold since mid/late 2019, but now the time has come - on April 21, 2021, the German parliament passed the draft amendment to the Real Estate Transfer Tax Act (hereafter “RETT Act”), taking into account the amendments of the Finance Committee (BT Drucksache 19/28528). Once it has passed the Council of the Federal States (Bundesrat), the law will come into force on July 1, 2021. It remains to be seen whether the Council of the Federal States will discuss this matter in the next plenary session on May 7, 2021.

The draft of amendments at a glance:

  • Reduction of the 95% limit to 90% for all "share deals", i.e. for the transfer of shares in corporations and partnerships
  • Introduction of a provision for corporations to cover share transfers of at least 90% to one or more acquirers within 10 years (only those changes in the shareholder structure that take place after June 30, 2021 are taken into account)
  • Extension of the holding periods from 5 to 10 years
  • Provisions on reorganisation
    Extension of holding period in Section 6 RETT Act to 15 years (mainly concerning arrangements for partnerships)
  • Introduction of stock exchange clause (new)

The key points from 2019 have remained in the latest draft:

The lowering of the 95% limit to 90% affects the provisions on changes in the shareholder structure of partnerships (Sec. 1 para. 2a RETT Act), on amalgamation of shares and transfer of shares (Sec. 1 para. 3 RETT Act) and on beneficial ownership (Sec. 1 para. 3a RETT Act). Furthermore, the holding period is extended from 5 to 10 years (or to 15 years in Sec. 6 para. 4 RETT Act for certain reorganisations involving partnerships).

With Sec. 1 para. 2b RETT Act draft, a counterpart to Sec. 1 para. 2a RETT Act has now been created, so that a corresponding change in the shareholder structure of real estate-owning corporations should trigger RETT.

A new addition - after justified criticism - is an exemption for listed corporations in Sec. 1 para.2c RETT Act draft. Thus, the change in the shareholder structure due to the trading of shares on the stock exchange remains out of consideration. This also applies to real estate-owning corporations and partnerships that are lower tier subsidiaries of the listed company.

The amended provisions of RETT Act is scheduled to enter into force on July 1, 2021. The transitional provisions provide in particular that:

  • Partners of a partnership who are already so-called "old partners" as of June 30, 2021, remain old partners (grandfathering rule for partners who hold their interest at least 5 years or who were partners from the partnership’s inception). They can therefore acquire further interest in partnerships without triggering RETT under Sec. 1 para. 2a RETT Act;
  • If, prior to July 1, 2021, a change in the shareholder structure of a partnership, an amalgamation of shares or acquisition of economic interest of at least 90% but less than 95% takes place, the previous threshold of at least 95% will continue to apply. With respect to the change in the partnership's shareholder base, the current rule will apply until June 30, 2026, and indefinitely for the remaining cases;
  • Contrary to what was discussed in 2019, the transitional provision does not foresee the application of the amended Section 1 para. 2a and para. 2b RETT Act on share transfers following to a transfer agreement concluded on or after the submission of the draft of RETT Act to the Council of Federal States. The new section 1 para. 2b RETT Act is not to apply to transfers of shares that take place before June 30, 2021.

Client Alert 2021-120