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Real estate transfer tax – A buyer’s trustee status is not a justification for a tax exemption

Real estate transfer tax is generally incurred when a property is purchased. According to a decision that was recently announced by the Federal Fiscal Court (Bundesfinanzhof, BFH), this is also the case when a property held in trust is transferred.

In this ruling from 30.11.2020 (case reference: II B 41/20), the Munich-based BFH judges dealt with the issue of whether or not a fiduciary relationship in relation to property transfers triggers real estate transfer tax. In the above-mentioned case, the legal proceedings had been instituted by a German limited partnership (Kommanditgesellschaft, KG) that had purchased a multi-family house in 2018. Immediately after the conclusion of the purchase contract, the contracting parties concluded a trust agreement according to which the KG 

  • acted merely as a trustee, 
  • would hold and renovate the property for the account and risk of the vendor and
  • was also obliged to reassign the property at any time.

The competent tax office determined the amount of real estate transfer tax that was due. The KG argued that the plot with the multi-family house erected on it was still economically assigned to the vendor and that the latter had also retained the full power and authority over the property. In the opinion of the Lower Saxony tax court, determining real estate transfer tax was legitimate because the tax is related to civil law and under that the trustee becomes the owner – the economic perspective does not apply here. 

The BFH likewise adopted this view since, under civil law, the trustee has a right to transfer the property and acquires the ownership of the property. Accordingly, the trustee status does not alter anything in relation to the imposition of real estate transfer tax since the KG had become the owner and this situation could not be changed either by the contractual agreement or the reassignment right that had been agreed at the same time.

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