Tightening of real estate transfer tax: Draft legislation of the BMF published
On 08.05.2019, the Federal Ministry of Finance published the draft legislation for an "Annual Tax Act 2019", which under the official title "Draft of a law on further tax incentives for electromobility and on the amendment of further tax regulations" does not reveal its explosive nature for real estate transfer tax.
The associations have until 05.06.2019 to make a statement. The legislative process should be completed during 2019.
One of the most significant changes concerns the long and controversially discussed tightening of the real estate transfer tax for so-called share deals. An already very complex subject would become even more complex if the planned changes were implemented. The changes that are briefly outlined below apply to acquisition processes carried out after 31.12.2019:
The shareholding limit for the existence of shareholder changes subject to real estate transfer tax in partnerships (§ 1 para. 2a GrEStG) will be reduced from currently 95% to 90%; moreover, the new shareholder status no longer ends after 5 years, but after 10;
Transitional arrangements in this respect: For shareholders who cannot be qualified as existing shareholders by 31.12.2019, the new regulation extends the previous five-year period to 10 years (indirect retroactive effect of the law); The old regulation remains in place for investments between 90% and 94.9%, the reaching of the 95% limit remains taxable in these cases until 31 December 2024. It is noteworthy that an acquisition process under the new regulation is not realized if it is based on a commitment transaction concluded before the day on which the present draft law was submitted to the Bundestag; however, this only applies if the commitment transaction was concluded within one year before this date of submission to the Bundestag and is fulfilled within one year after this date (by transfer of the shares). There is therefore still an opportunity time frame to protect transactions from the tightening of the law.
The change of shareholders in corporations are treated in the same way as in partnerships (§ 1 para. 2b GrEStG). If 90% of the shares are transferred to new shareholders within 10 years of 01.01.2020, this triggers real estate transfer tax.
Transitional arrangements in this respect: The new regulation does not apply to transfers of shares in a corporation based on a commitment transaction concluded before the day on which the draft was submitted to the Bundestag; however, this only applies if the commitment transaction was concluded within one year before this date of submission to the Bundestag and is fulfilled within one year after this date (by transfer of the shares). Here, too, there is currently still an opportunity time frame to protect oneself from the application of the new regulation.
The (economic) association of shares (Section 1 para. 3 and para. 3a GrEStG) is no longer realized at 95% for all companies, but already at 90%;
Transitional arrangements in this respect: The old regulation remains in force for shareholdings of between 90% and less than 95% on 31.12.2019; the combination of 95% of the shares (or more) remains taxable in these cases.
Extension of the pre- and post-holding periods for tax exemptions for partnerships in accordance with §§ 5, 6, 7 GrEStG from 5 to 10 years. For the exemption according to § 6 GrEStG there is a very complex application regulation which provides for a 15-year holding period: The exemption shall not apply if the acquirer (in the case of succession, his legal predecessor) has acquired his shares in the assets of the partnership by legal transaction among living persons within 15 years prior to the acquisition transaction in the case of an (economic) association of shares (§ 1 para. 3 nos. 1 and 2, para. 3a GrEStG). This, in turn, shall not apply if one of the acquisitions of the shares in the partnership assets by this acquirer (or his legal predecessor) led to a taxable acquisition process within the meaning of § 1 para. 2a. However, no reference is made to § 1 para. 2b GrEStG n.F. in this case.
Transitional arrangements in this respect: If the old five-year period expired before 01.01.2020, the extension of the period after the new regulation does not apply. Despite the new regulation, the acquisitions will remain exempt from real estate transfer tax in the future.
In particular, the transitional arrangements described above, which are somewhat simplified, increase the complexity of the legal regulations and will have a considerable impact on the organization of share deals in the near future. In practice, this results in many pitfalls, the avoidance of which requires a carefully planned and analyzed procedure in order not to trigger unnecessary real estate transfer tax and thus considerable tax burdens.
It is still unclear when the draft will be submitted to the Bundestag. The plenary session before the parliamentary summer break will last until 17 May 2019, or in the 23th calendar week (03.-07.06). If the draft has not been submitted by then, it can only be submitted after the summer break, because then the Bundestag will not meet again until 9 September 2019.
We will keep you informed about the further development of the legislative process.