Real estate transfer tax under scrutiny in Europe - Referral to the European Court of Justice (ECJ)
Real estate transfer tax under scrutiny in Europe - Referral to the European Court of Justice (ECJ)
In 2009, Germany included a so-called group clause in the Real Estate Transfer Tax Act (GrEStG). However, the exemption for restructuring in group structures associated with this does not fully implement the requirements of the European Capital Transfers Tax Directive (2008/7/EC of the Council of 12.02.2008) and - in addition to the restrictive interpretation by the tax authorities - has always been the target of criticism. Under certain circumstances, restructurings within a group may also trigger (multiple) RETT. German companies are therefore far less flexible than companies abroad.
In a ruling dated 8 February 2023 (case no. 4 K 1671/20), the Munich tax court has now ruled against a stock corporation based on the current legal situation. As the operating parent company, it indirectly held several properties in Germany via intermediate companies for various group divisions. The ultimate parent company was domiciled in Austria. In the case of a (downward) merger of the ultimate group company into a subsidiary pursuant to Austrian law, the requirements of the group clause of § 6a GrESt were not met due to the specific ownership structure within the group and the tax office assessed taxation pursuant to § 1 para. 3 no. 4 GrEStG.
This was upheld by the tax court. As part of the appeal proceedings (case no. II R 8/23), the German Federal Fiscal Court (BFH-Bundesfinanzhof) followed the obligation stipulated by the Federal Constitutional Court (Bundesverfassungsgericht, BVerfG) (with rulings from 2021 and 2023) to have the relevant legal question clarified by the ECJ and referred the matter to the ECJ for a ruling. Taking into account the ECJ case law on the implementation and application of the European Directive in other EU member states, there are certainly substantial arguments that the German regulations do not sufficiently exempt restructurings from real estate transfer tax and therefore there are sufficient doubts as to their compatibility with the European regulations.
In view of the pending proceedings before the Federal Fiscal Court and the European Court of Justice - and their perspectives in terms of time - corresponding restructurings must be examined very carefully in tax consultancy practice and, if possible, should be confirmed in advance with binding information. In the case of restructurings that have already been carried out and subsequent RETT assessments, appeals should be lodged regularly in order to be able to await the decision of the ECJ with regard to the non-taxability of restructurings.
In a ruling dated 8 February 2023 (case no. 4 K 1671/20), the Munich tax court has now ruled against a stock corporation based on the current legal situation. As the operating parent company, it indirectly held several properties in Germany via intermediate companies for various group divisions. The ultimate parent company was domiciled in Austria. In the case of a (downward) merger of the ultimate group company into a subsidiary pursuant to Austrian law, the requirements of the group clause of § 6a GrESt were not met due to the specific ownership structure within the group and the tax office assessed taxation pursuant to § 1 para. 3 no. 4 GrEStG.
This was upheld by the tax court. As part of the appeal proceedings (case no. II R 8/23), the German Federal Fiscal Court (BFH-Bundesfinanzhof) followed the obligation stipulated by the Federal Constitutional Court (Bundesverfassungsgericht, BVerfG) (with rulings from 2021 and 2023) to have the relevant legal question clarified by the ECJ and referred the matter to the ECJ for a ruling. Taking into account the ECJ case law on the implementation and application of the European Directive in other EU member states, there are certainly substantial arguments that the German regulations do not sufficiently exempt restructurings from real estate transfer tax and therefore there are sufficient doubts as to their compatibility with the European regulations.
In view of the pending proceedings before the Federal Fiscal Court and the European Court of Justice - and their perspectives in terms of time - corresponding restructurings must be examined very carefully in tax consultancy practice and, if possible, should be confirmed in advance with binding information. In the case of restructurings that have already been carried out and subsequent RETT assessments, appeals should be lodged regularly in order to be able to await the decision of the ECJ with regard to the non-taxability of restructurings.