Tax exemption under Section 5 (2) GrEStG in insolvency cases at risk

With regard to real estate transfer tax, Section 5 of the German Real Estate Transfer Tax Act (GrEStG) grants a tax concession for property transfers to joint ownership communities, provided that the economic interest in the property is retained. The prerequisite is that the contributing joint owner's share in the joint ownership assets is not reduced for ten (until July 1, 2021: five) years. If this retention period is violated, for example through share transfers or withdrawal, the benefit is retroactively forfeited to the extent that the participation in the joint ownership is reduced. In its decision of August 27, 2025 (case no. II R 50/21), the German Federal Fiscal Court (BFH) has now decided how insolvency law and tax law relate to each other if it is only through the implementation of an insolvency plan that a proportional transfer of shares and thus a violation of the ten-year retention period occurs.

A limited partner with an exclusive financial interest in a GmbH & Co. KG (KG) contributed a piece of real estate to this KG in 2012. Accordingly, the tax office granted the tax exemption under Section 5 (2) GrEStG. In 2014, insolvency proceedings were opened against the KG's assets. According to the insolvency plan drawn up for this purpose, 94.9% of the taxpayer's shares in the KG were to be transferred to a newly founded GmbH. In March 2016, this insolvency plan was confirmed, the monitoring of its implementation was ordered, and the insolvency proceedings were terminated. The registration and thus effective transfer of the shares took place in August 2016, i.e., within the (then) five-year blocking period (Section 5 (3) GrEStG). In the absence of notification of the change in shares, the tax office only became aware of the transactions at the end of 2017 and then assessed real estate transfer tax of approximately EUR 32,500 in August 2018, as the reduction in shares had retroactively voided the tax exemption. However, the KG only paid 15% of this amount, in line with the quota provided for in the insolvency plan. It argued that the tax claim was an insolvency claim, as such fully settled by the insolvency plan and, moreover, time-barred.

The tax office and tax court did not consider the real estate transfer tax claim to be an insolvency claim, as the relevant circumstances – the reduction in shares – did not occur until 2016. However, even if it had been an insolvency claim, the insolvency plan would not have led to the claim being extinguished, but merely to it being unenforceable. In a settlement notice requested by the KG, the tax office ruled that only approximately EUR 4,875 (15% of the assessed real estate transfer tax) had been extinguished by payment and that the remainder was still outstanding. This was also confirmed by the tax court. Ultimately, the appeal lodged by the KG was unsuccessful, but the BFH made a partially different legal assessment.

The BFH first confirmed that the assessment of real estate transfer tax was permissible because, in substantive law, the retention period had been violated as a result of the transfer of the limited partnership shares in the course of the implementation of the insolvency plan. Due to this retroactive event, the tax for the 2012 contribution transaction had to be reassessed.

However, the BFH classified the claim for the assessed real estate transfer tax as an insolvency claim under insolvency law despite its later origin, as the tax-related acquisition had already been completed in 2012. A tax claim that arose only after the opening of insolvency proceedings can nevertheless be an insolvency claim that was “established” before the opening of insolvency proceedings. This also applies to the loss of the tax exemption under Section 5 GrEStG: the change in the contributor's share in the joint ownership during or after the insolvency proceedings has a material effect on the acquisition transaction established before the opening of insolvency proceedings.

Nevertheless, this did not prevent the real estate transfer tax from being assessed. This is because the insolvency proceedings had already been discontinued at that point in time, meaning that tax assessments relating to insolvency claims could be issued again. The insolvency claim arising retroactively after the insolvency proceedings because of the transfer of shares continued to exist as an imperfect liability despite the provision in the insolvency plan (satisfaction of only 15%). Although the partial exemption of the KG from its liabilities effected by the insolvency plan must also be accepted by the tax office, it only leads to a prohibition of enforcement and set-off but does not prevent its assessment after the insolvency proceedings have been terminated.

The BFH also rejected the statute of limitations asserted by the KG. The one-year period applicable to claims of an insolvency creditor that have not been filed by the voting date (Section 259b InsO) only begins when the insolvency plan becomes final and the claim is due. In the case of real estate transfer tax, the due date is only one month after notification of the respective assessment (section 15 GrEStG). Therefore, no statute of limitations could have come into effect at the time of assessment. In addition, the tax office could not register the tax claim, which only arose upon completion of the insolvency proceedings (implementation of the insolvency plan), by the voting date. Nor was the assessment deliberately delayed, as the KG had failed to notify the change in the shareholder structure in breach of its obligations and the tax office had only learned of the share transfer in autumn 2017 after making an explicit enquiry.

Accordingly, the BFH also ruled that the settlement notice issued was lawful. Only the partial amount paid had expired. There were no other reasons for expiry. It was not necessary to decide whether the remaining real estate transfer tax claims could ultimately be collected: questions of enforceability concern enforcement, not the settlement notice.

Notice: 

Insofar as the substantive legal requirements for tax relief over longer periods (currently, the retention period is as long as 10 years) must be taken into account in the context of real estate transfer tax, this applies not only to corporate or tax transactions, but also in general, meaning that far-reaching consequences may arise for other reasons, such as insolvency in this case. In addition, the ruling once again highlights the special features of real estate transfer tax with regard to the disclosure requirements that must be complied with.