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Germany: German Ministry of Finance set to join case on RETT intra-group exception


Alexander Linn

Thorsten Braun

Germany's Federal Tax Court (BFH) has asked the German Ministry of Finance to join a pending case on the intra-group exception to the German real estate transfer tax (RETT) (case ref. II R 62/14). One of the issues raised by the BFH relates to the question of whether or not the intra-group exception has been notified to the European Commission as potential state aid.

Under the RETT intra-group exception, certain direct or indirect transfers of real estate are exempt from tax. One condition for that exception to apply is that the transaction involves one controlling company and one or more controlled entities, requiring a direct or indirect shareholding of at least 95% to exist for five years before and after the transaction. If interpreted literally, this criterion cannot be met where the transaction involves a merger (where the controlled entity disappears) or a demerger (where the controlled entity is created) because the 95% shareholding would either not survive the transaction or would not exist prior to the transaction. Due to the complexity of the rule and the inconsistency of the current administrative guidance, the BFH has asked the Ministry of Finance to join the case and to provide its view on the rule.

Also worth noting is that the BFH has raised the issue that this intra-group exception might constitute state aid according to article 107 TFEU. The BFH has asked the Ministry of Finance to confirm if the rule has been notified as potential state aid or not. This issue, which has not been discussed in German literature, shows the increased importance of state aid in the area of direct taxation, which extends far beyond the current discussion on ruling practices.

Alexander Linn ( and Thorsten Braun (


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