German Real estate transfer tax: on the requirements of the so-called group clause

According to Section 6a (1) of the Real Estate Transfer Tax Act (GrEStG), the real estate transfer tax is not levied on certain legal transactions resulting from a conversion under the Conversion Act (UmwG). However, there are further requirements for this so-called “group clause”: a controlling company (and one or more of its subsidiaries) must be involved in the conversion or contribution transaction. A company is only considered “dependent” if the controlling company has held at least a 95% stake in it continuously for five years prior to and five years after the legal transaction. In two recently published rulings, the German Federal Fiscal Court (BFH) clarifies several legal issues that were open in this context. 

In its decision of May 21, 2025 (case no. II R 56/22), the Federal Fiscal Court ruled that several shareholders who do not individually but only collectively meet the minimum 95% shareholding threshold cannot be regarded as a “controlling company.”

In the case in dispute, a company owned by several shareholders had transferred its shares in another property-owning company to a company newly established for this purpose - the plaintiff - by way of a spin-off for the purpose of forming a new company. The tax office and the tax court considered the transfer of the property to be taxable under Section 1 (3) No. 4 GrEStG, as all shares in the real estate company had been transferred to the plaintiff by way of spin-off. The requirements for a tax concession under § 6a GrEStG were not met, as no controlling company and no dependent companies within the meaning of this provision were involved in the conversion process. This was confirmed by the BFH. 

There was no participation by a controlling company. Which company is to be regarded as the “controlling company” and which companies are to be regarded as “dependent companies” within the meaning of this provision depends on the respective conversion process for which the tax is not to be levied pursuant to Section 6a sentence 1 GrEStG. Although the wording of the provision does not specify a particular legal form for the “controlling company,” at least a group of shareholders that is not organized in the legal form of a partnership or corporation is not a legal entity within the meaning of civil law and real estate transfer tax law. If no single member of the group meets the 95% shareholding threshold, there is therefore no controlling company. 

Notice: 

In this specific case, it was neither argued nor apparent whether the group of shareholders formed a civil law partnership (GbR) or another type of company and whether their shareholdings in such a company were to be aggregated, so that the company itself could have been a controlling company with a shareholding of at least 95%. In this respect, there may be some leeway for future conversion processes if this is compatible with other circumstances that need to be examined on a case-by-case basis.

In its second decision of May 21, 2025 (case no. II R 31/22), the German Federal Fiscal Court (BFH) denied the possibility of waiving compliance with the five-year retention period by the controlling company in relation to the acquiring company if compliance with the period would have been legally possible.

In this case, a municipality had transferred the operation of an assembly hall and the associated land to a company that had been newly founded for this purpose shortly before by way of spin-off (Section 1 (1) No. 2, 123 (3) No. 1 UmwG). The taxable transaction was also not eligible for tax exemption under Section 6a GrEStG because the municipality had not held a stake in the acquiring company for at least five years prior to the conversion, as required by Section 6a sentence 4 GrEStG. In this regard, the municipality had referred to the far-reaching teleological reduction of the reservation and retention periods by the BFH case law, which would also apply to the present case because the company was founded solely for the purpose of subsequent spin-off and the dispute therefore corresponded economically to a spin-off for the purpose of founding a new company. The BFH rejected this argument. 

In the past, the BFH has ruled that the deadlines specified in Section 6a sentence 4 GrEStG only have to be observed to the extent that they can be observed on the basis of a preferential conversion transaction. However, in the case of a spin-off for the purpose of forming a new company, this is not possible due to the conversion, because the newly formed company only comes into existence as a result of the spin-off. However, these principles do not apply if the company is not newly created by the conversion but already existed prior to the conversion, so that compliance with the five-year reservation period would have been possible in practice. This is because non-compliance with the reservation or retention period must be based on reasons related to the conversion. Since, in the case of a spin-off to an existing company, compliance with the period would have been legally possible even taking into account the law on conversions, there is no reason for a further teleological restriction. In the case of a spin-off for absorption by an existing company, compliance with the reservation or retention period cannot therefore be waived.

Notice: 

The ruling confirms that the restrictive application of the reservation or retention period by the German Federal Fiscal Court in cases of impossibility due to conversion must continue to be interpreted narrowly. This must be taken into account when planning real estate-related restructuring. However, conversion and conversion tax law offers a wide range of options that can be exploited with careful planning.