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Real Estate Transfer Tax – Latest developments in the legislative procedure

Since 2016, policy makers have been pursuing the aim of tightening up the real estate transfer tax (RETT) rules for so-called share deals. It is argued that, among things, RETT is always incurred when private individuals purchase their own homes, yet large real estate investors are able to avoid this tax through share deals. A specific reform law is now the subject of a legislative procedure.


The governmental draft “law amending the Real Estate Transfer Tax Act" (Gesetz zur Änderung des Grunderwerbsteuergesetzes, GrEStG-E) was adopted by a resolution of the German cabinet from 31.7.2019. This was followed by recommendations from the Finance Committee of the upper house of the German parliament (Bundesrat, BR), on 6.9.2019. These were, in particular:

  • a time limit for the recognition of changes of shareholders for determining new shareholder status for a corporation with a stake in a partnership,
  • the introduction of a stock market clause,
  • an adjustment to the corporate group clause for tax-exempt restructurings (Section 6a GrEStG) and
  • non-recognition of transfers of shareholdings in the case of corporations before the GrEStG Reform Act comes into force.

Subsequently, on 20.9.2019, the Bundesrat – while mostly following the Finance Committee’s recommendations – expressed its opinion on the governmental draft [BR printed matter 355/19].

Key points of the Bundesrat’s opinion statement

(1) New shareholder status of corporations (Section 1(2a) clause 4 GrEStG) – The original draft law provided that any change of shareholder would be relevant for determining the new shareholder status of a corporation with a stake in a partnership. According to the proposal of the Finance Committee of the Bundesrat, this should be limited to a period of 10 years.

(2) Stock market clause (Section 1(2a) clause 7 and Section 1(2b) clause 7 GrEStG, amended version) – According to this, the provisions on changes of shareholders would not be applicable in the case of shareholdings held by stock exchange-listed corporations in real estate companies. In the view of the Bundesrat, while the constant changes of shareholders would basically mean that the prerequisites constituting abusive structures would be fulfilled, nevertheless, given the objectives of the investors this is not normally the case. However, exclusion on the basis of the ‘stock market clause’ should only apply if the shares admitted to trading constitute the vast majority of the capital of the stock exchange-listed corporation.

(3) Corporate group clause (Section 6a GrEStG) – Under the current Act, only specific restructurings among affiliated companies benefit from the exemption from RETT. In practice, numerous cases have arisen where, according to the legislative objectives, tax exemptions would be desirable but are not achievable under the current Act (e.g. in the case of direct transfers of real estate within a group or restructurings that involve holding companies). The planned extension of the GrEStG would further aggravate this ‘precarious situation’. In the opinion of the Bundesrat, to better reflect the original intention of the German legislator an assessment should be made to determine if real estate transfers within a group could be entirely excluded from RETT without however opening up any new leeway for potentially abusive structures.

(4) Prohibition on retrospective laws (Section 23 GrEStG) – The Bundesrat recommended ruling out retroactive application of the new rules under Section 1(2b) GrEStG-E (change in shareholders of a corporation). The draft law provides for the recognition of transfers of shareholdings to corporations even before the new legal provisions come into force (probably as of 1.1.2020) if the definitive transaction imposing an obligation had not been completed before the draft law was forwarded to the Bundesrat (relevant cut-off date: 9.8.2019) and if this has not been completed within a period of one year after this cut-off date (i.e. at the latest by 8.8.2020). According to the proposal of the Bundesrat, the application of the new rules should be restricted to transfers of shareholdings that happen after 31.12.2019 so that the question of a potential retroactive effect would not arise.

The Federal government’s draft law from 23.9.2019 and the response on 25.9.2019

The draft law tabled for a decision by the German government, on 23.9.2019, in the Bundestag was in line with the previously published draft law but had not yet taken into account the above-described proposals of the Bundesrat. The German government expressed its opinion on these proposals on 25.9.2019 and all four of the amendments proposed by the Bundesrat were approved. There were restrictions in only two points. In the case of the stock market clause, the specific form of the provision still has to be considered. Moreover, as regards the corporate group clause, the outcome of the proceedings currently pending before the Federal Fiscal Court (Bundesfinanzhof, BFH) relating to Section 6a GrEStG will first be awaited.

Outlook: All of the Bundesrat’s recommendations should be welcomed and they would make a considerable contribution towards simplifying the application of the new GrEStG. Yet, the wording of the response by the Federal government to the proposals indicates that there will not be a quick solution. Both the enquiry into a possible stock market clause as well as the adjustment to the corporate group clause are likely to be very time-consuming and, at the very least, having to wait for the pending decisions of the BFH in relation to Section 6a GrEStG would accordingly appear to rule out any new provisions in the course of the current legislative procedure.

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