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Germany: No real estate transfer tax charge on indirect partial transfer of partnership share


Hartwig Welbers, PwC

Real estate transfer tax (RETT) of between 3.5% and 5.5% of the taxable value of property owned by a partnership is due if at least 95% of the ownership interests in the partnership change over a five-year period. The change can be direct or indirect. On this basis, the tax office raised a RETT assessment on a partnership of two partners after the ultimate holding company of a 6% partner sold 50% of the shares in its interposed direct subsidiary to another direct subsidiary and the remaining 50% to a third party following the transfer of the 94% partnership interest by the other partner to a different third party. The tax office contention was that the effective composition of the property owning partnership had changed by more than 95%, taking all changes together. The Supreme Tax Court in its judgment II R 17/10 of April 24 2013 published on June 19 2013 has now rejected the tax office's contention. Rather, only 94% of the partnership interest had changed hands (the first transaction) and the 6% holding remained unaffected. Direct changes of ownership were a matter of legal form, while indirect changes could only be seen as a matter of business substance. In that respect only a sale of all the shares in an interposed corporation to a new ultimate shareholder enabled him to dispose over the partnership share without reference to the other investor. The 50% sale at issue did not and was not therefore the equivalent of a transfer of a 3% share in the partnership.

Whether this judgment applies to indirect changes in shareholdings in a property-owning corporation is not entirely clear, although such a conclusion would seem logical.

The tax authorities are rumoured to be considering a decree instructing tax offices not to follow this court decision as a precedent in other cases.

Hartwig Welbers (


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