Updates
Date:
This article was written by
Certified Tax Advisor, Partner, M&A Real Estate Tax
Certified Tax Advisor, Lawyer, Director, National Office Tax & Legal
If the assets of a company include a domestic real estate property, share transactions are treated for real estate transfer tax purposes as transfers of real estate and are subject to real estate transfer tax if they shift decisive control over the company (and thus over the real estate). The corresponding fictitious acquisition provisions (Section 1 (2a), (2b) and (3) of the German Real Estate Transfer Tax Act (Grunderwerbsteuergesetz; GrEStG)) deem an acquisition of real estate to occur even though, under civil law, the company remains the owner. Since July 2021 the real estate transfer tax is already triggered if directly or indirectly at least 90 % of the shares in a property-holding company are united or transferred. According to the decision of the European Court of Justice (ECJ) of June 4, 2026 (case no. C-837/24) in a Portuguese proceeding, German real estate transfer tax could also be called into question at least for certain restructurings of corporations.
As part of a corporate restructuring, a holding company (Nova Iberomoldes) was incorporated as a public limited company under Portuguese law in such a way that its share capital was fully contributed by contributions in kind, namely in the form of shareholdings that its sole shareholder held in several companies, one of which owned real estate. The Portuguese tax authorities subjected this transfer of assets to the municipal tax on onerous transfers of real estate (“IMT”). The company challenged this and relied on the so-called Capital Accumulation Directive (Directive 2008/7/EC on indirect taxes on the raising of capital), which prohibits Member States from imposing indirect taxes on certain corporate transactions such as capital contributions and restructurings. The Portuguese court, in a request for a preliminary ruling to the ECJ, asked whether Directive 2008/7/EC allows the imposition of a tax on the transfer of real estate in respect of a transaction in which a capital company is formed whose share capital is fully provided by contributions of shareholdings in other companies that own real estate and which are contributed by the transferring company in return for receiving the entire share capital of the newly formed company.
The ECJ first recalls that the Directive requires Member States not to impose any form of indirect tax on capital companies in respect of certain capital contributions and the restructuring measures listed therein. Because the operation in question met those conditions of the Directive, that also applies to the Portuguese IMT. The ECJ expressly rejects Portugal’s - and Germany’s, which intervened in the proceedings - argument that the taxable event for the IMT lies in the economic transfer of the real estate and not in the transfer of shares.
Moreover, the ECJ considers the exceptions cited by the Member States as permitted by the Directive to be inapplicable in the present case. On the one hand, the restructuring in question is neither an autonomous transfer of securities nor a transfer of legal or beneficial ownership in real estate. On the other hand, a blanket application of the tax to prevent tax avoidance is disproportionate because it does not target specific abuse cases.
The Directive therefore precludes such national taxation.
Significance for the legal situation in Germany
The German Federal Fiscal Court (Bundesfinanzhof; BFH) had, with its leading decision of December 19, 2007 (case no. II R 65/06), rejected that a unification of shares in the hands of a public limited company, which arises because in the course of a capital increase shares in a directly or indirectly property-holding company are contributed in return for the granting of new shares, falls under the then applicable corresponding Directive and therefore viewed the real estate transfer tax liability of a unification of shares as compatible with Community law. The underlying consideration was that the real estate transfer tax on an acquisition of shares is a permissible tax on the transfer of real estate ownership. The aforementioned provisions of the German Real Estate Transfer Tax Act are based on this reasoning. Accordingly, the German federal government also argued in the ECJ proceedings that the transaction should be regarded “economically” as an acquisition of real estate and that the taxation accompanying it was therefore permissible. Whether this view and its reasoning - and thus the legal basis of the German rules - can still be maintained after the ECJ judgment appears highly doubtful. Even though German law already contains certain exceptions (Section 6a GrEStG), the Capital Accumulation Directive covers a wide range of corporate transactions. National exemptions that provide a narrower scope of protection than the Directive or impose additional conditions are unlikely to be sufficient.
In addition, with its decision of September 25, 2024 (case no. II R 36/21) the BFH had still decided that Section 1 (3) GrEStG does not violate the Capital Accumulation Directive, that the application of Section 6a GrEStG in the concrete case did not infringe the freedom of establishment or the free movement of capital, and that no reference for a preliminary ruling to the ECJ was required. A constitutional complaint (case no. 1 BvR 574/25) is pending against this. The Federal Constitutional Court will have to take the current ECJ judgment into account in its decision-making, since the ECJ’s interpretation is binding on all courts of the Member States and must therefore be implemented in similarly affected decisions.
Affected companies may, however, already rely on the Directive in appropriate cases and claim exemption from real estate transfer tax even before that decision. Thus, restructurings already completed may still fall within the principles of the ECJ judgment, provided the relevant tax assessment has not yet become final. We will be pleased to assist you in examining such cases and, if necessary, pursuing legal remedies.