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Certified Tax Advisor, Lawyer, Director, National Office Tax & Legal
Senior Consultant, National Office Tax & Legal
If the membership of a property-owning partnership changes in such a way that at least 95 % of the shares are transferred to new members within ten years, this transaction is subject to real estate transfer tax (Section 1 (2a) of the German Real Estate Transfer Tax Act, GrEStG). In its decision dated of 5 November 2025 (case no. II R 9/23), the German Federal Fiscal Court (BFH) ruled that this also applies in the event of the termination of a trust relationship, whereby the shares in the partnership previously held in trust are transferred from the trustees to the settlors. Considerations of economic attribution are irrelevant.
A civil-law partnership (GbR) was established by two trustees on behalf of two settlors who were minors at the time. The trustees were authorised to exercise all partnership rights in their own names, but only in accordance with the settlors’ instructions and for the settlors’ sole account, acting in their best interests. As partners in the GbR, the trustees acquired a plot of real estate through a compulsory auction. Thirteen years later, the trust agreement was terminated and the trustees transferred their shares in the GbR to the former settlors. The tax authorities assessed real estate transfer tax on this transfer of shares, referring to Section 1 (2a) of the German Real Estate Transfer Tax Act (GrEStG).
The GbR contested this, arguing that, pursuant to Section 39 (2) no. 1 sentence 2 of the German Fiscal Code (AO), the shares in the GbR were to be attributed economically to the settlors from the outset. Since the settlors could not acquire shares from themselves, the transfer of shares was not taxable. Although the Lower Fiscal Court (FG) accepted that the transfer of shares was taxable, it ultimately exempted it by applying the principle of non-levy of real state transfer tax in the case of a transfer from one joint ownership to another with identical shareholders (Section 6 (3) sentence 1 of the Real Estate Transfer Tax Act, GrEStG).
The Federal Fiscal Court (BFH) upheld the ruling of the Lower Fiscal Court insofar as the termination of the trust and the associated transfer of the company shares from the trustees to the settlors constitutes a transaction subject to real estate transfer tax under Section 1 (2a) of the Real Estate Transfer Tax Act (GrEStG). The provision requires, within the context of the necessary change in the shareholder structure, a transfer of shares to ‘new’ shareholders. In the case of a direct change in the shareholder structure, as in the present case, and thus also for the transfer of shares from the trustees to the settlors, this must be assessed and affirmed exclusively under civil law. Aspects of economic attribution are irrelevant in this respect (they are limited to indirect changes in the shareholder structure). The Federal Fiscal Court (BFH) thus confirms its earlier case law, in which it also based its assessment of share transfers for real estate transfer tax purposes exclusively on civil law attribution (decision dated of 9 July 2014, case no. II R 49/12; decision dated of 29 February 2012, case no. II R 57/09).
However, with regard to the application of the principles set out in Section 6 of the Real Estate Transfer Tax Act (GrEStG), the Federal Fiscal Court (BFH) overturned the decision of the court of first instance. It is true that Section 6 GrEStG applies to all taxable acquisitions under Section 1 GrEStG, including the notional acquisition under section 1 (2a) GrEStG. However, in the case of a transfer of a partnership interest from the trustee to the settlor, as assessed here, the necessary identity of participation is lacking. The settlor becomes a new partner in the GbR (see above) and was therefore not previously a participant in its partnership assets within the meaning of Sections 5 and 6 of the GrEStG. A trust relationship is not sufficient for this purpose. For, according to the civil law approach – which is to be adopted in this respect rather than an economic one – it was not the settlor but the trustee who held an interest in the joint assets.
Consequently, the transfer of the shares in the GbR from the previous trustees to the settlors triggered real estate transfer tax, even though the trustees had acquired and held the property from the outset in their own names but for the sole benefit of the settlors.
Note:
In trust arrangements for the purpose of acquiring real estate, this court decision makes it essential to bear in mind from the outset that a subsequent transfer to the settlors will generally trigger real estate transfer tax. Given the specific provisions of the Real Estate Transfer Tax Act (GrEStG), this cannot be circumvented by having a company acquire the property and then transferring the shares in that company. Unless it is absolutely necessary to acquire a property – as an investment – for the settlors, alternatives should be considered where the transfer does not trigger any transfer taxes.