I. Real estate transfer tax in share deal transactions

In the case of share deals in companies with real estate, the effects on real estate transfer tax must be examined in advance. Of central importance are the provisions of section 1 para. 2a and section 1 para. 2b German Real Estate Transfer Tax Act (Grunderwerbsteuergesetz – GrEStG). These two provisions affects the change in the shareholder structure of a company if certain threshold values are exceeded. The transfer of at least 90% of the shares in the real estate-owning partnership or corporation to new shareholders is deemed to trigger real estate transfer tax (see newsletter article from July 2021). In addition, the (economic) unification of shares in real estate companies can trigger real estate transfer tax (section 1 para. 3 or para. 3a GrEStG). Since the introduction of section 1 para. 2b GrEStG in 2021, it has been discussed whether even both standards are relevant in the case of an acquisition of shares and whether, as a consequence, real estate transfer tax can be incurred twice.

II. “Signing-closing” opinion of the tax administration

The beginning of the long-standing discussions about a potential double taxation is the controversial “signing-closing” opinion of the tax administration. According to this opinion, there are two separate transactions that are each subject to Real Estate Transfer Tax two if the signing and transfer of the shares (closing) occur at different times. Whereas at the time of signing the conditions for the unification of shares pursuant to section 1 para. 3 and para. 3a GrEStG are fulfilled, the transfer of shares at the time of closing is a second taxable event. The latter is based on section 1 para. 2a and para. 2b GrEStG, which taxes the change in the shareholder structure of a company holding real estate. Accordingly, there is an increased risk of double taxation if the signing and the closing occur at different times.
Aaccording to the wording of the regulation, the (economic) unification of shares pursuant to section 1 para. 3 no. 2 and no. 4 or para. 3a GrEStG is expressly applicable in a subsidiary manner. As a result, the taxation must be based solely on section 1 para. 2b GrEStG. Nevertheless, the tax authorities – in contrast to all experts’ opinions – assume that there are two taxable transactions. The procedural process is correspondingly complex. In the opinion of the tax authorities, a tax assessment notice is to be issued and real estate transfer tax is to be assessed at the time of signing, unless the closing is expected within one year of signing. In the case of protracted share deal transactions, several real estate transfer tax assessment notices will be issued.
In the opinion of the tax authorities, it is also consequent that double taxation within the same transaction would not be justified. For this reason, the real estate transfer tax assessment notice korrigierissued at the time of the signing must be rescinded or amended. However, the legal basis on which this correction is to be made has so far remained open. Within the framework of the Annual Tax Act 2022, the legislator finally reacted to this legal uncertainty and introduced a specific procedural norm. Therefore, procedural pitfalls have to be taken into account.

III. New procedural pitfalls

In simplified terms, the newly introduced section 16 para. 4a GrEStG provides that the real estate transfer tax determined at the time of signing is to be rescinded or amended in any case if the preconditions of section 1 para. 2a or para. 2b GrEStG are fulfilled at the time of closing. It should be noted that the avoidance of double taxation is thus linked to two prerequisites:
Notification obligation
The new procedural norm does not apply if even one of the acquisition transactions was not reported in due time and completely in all parts (section 16 para. 5 GrESG). In the event of incomplete or late notification, double taxation may therefore occur. As part of a share deal, a notification is required at the time of signing as well as at the time of closing.
Application obligation
In order to avoid a double taxation, an application must also be submitted. At this time, however, it is still unclear what formal requirements will be imposed on that application (form, deadline, applicant, etc.). In practice, the application should be submitted in parallel with the notification of the closing. And in some cases the applicants could be different.

IV. Consequences for the practice

In the context of share deal transactions, new procedural pitfalls must be taken into account from a real estate transfer tax perspective. In order to avoid double taxation and liability risks, it is essential to ensure that a notification has been made in due time and complete in all parts both at the signing and at the closing. In the case of cross-border transactions, particular caution is required in this regard as the applicants may have changed. In the absence of transitional provisions, the newly introduced procedural norm of section 16 para. 4a GrEStG also applies retroactively to cases that have not yet been completed.