Real Estate Transfer Tax on Share Transfers Abroad: Federal Fiscal Court Ruling with Far-Reaching Consequences

The taxation of share transfers involving domestic real estate is a recurring topic of debate. In its ruling of September 25, 2024 (II R 36/21), the Federal Fiscal Court (BFH) clarified that real estate transfer tax may also apply to share transfers abroad, provided that the company in question holds real estate located in Germany. This applies regardless of whether there is a so-called extension of the chain of ownership.

Background: When is real estate transfer tax due on share transfers?

Pursuant to Section 1(3)(3) and (4) of the Real Estate Transfer Tax Act (GrEStG), the transfer of at least 90% of the shares in a company that owns real estate is subject to real estate transfer tax. In practice, the tax issue is particularly complex when the share transfer takes place within international corporate structures.

A tax exemption under Section 6a of the Real Estate Transfer Tax Act (GrEStG) is possible if the transaction constitutes a conversion within the meaning of the German Conversion Act (UmwG). Pursuant to § 6a, sentence 2 of the GrEStG, this exemption generally also applies to comparable conversions in EU or EEA countries. It was disputed whether this provision also applies to certain restructurings involving third countries.

The Case: Restructuring within an International Corporate Structure

In the underlying case, A Group Unlimited (A), based in Ireland, was the sole shareholder of B Holdings Limited (B), which in turn was the sole shareholder of real estate-owning companies in Germany.

In 2010, A established the plaintiff, a company based in the British Virgin Islands. Subsequently, A transferred all shares in B to the plaintiff in exchange for shares. The plaintiff then became tax-resident in Ireland.

Following an external audit, the tax office determined that this transaction was subject to real estate transfer tax. An exemption under § 6a of the Real Estate Transfer Tax Act (GrEStG) was denied, as the transaction did not constitute a conversion eligible for preferential treatment under German or EU/EEA law.

The Federal Fiscal Court’s Decision

The BFH upheld the tax authority’s position and dismissed the plaintiff’s appeal. The key points of the ruling:

1. Real estate transfer tax liability despite an international structure: An extension of the chain of ownership in which the previous sole shareholder is also the sole shareholder of the acquiring company is subject to real estate transfer tax even if the transfer is made to a foreign company. The decisive factor is that the transferred company holds real estate in Germany.
2. No tax exemption under § 6a GrEStG: The tax exemption under § 6a GrEStG requires a conversion under German conversion law or a comparable procedure in an EU or EEA country. The restructuring into a company based in the British Virgin Islands does not meet this requirement.
3. No violation of EU law: The Federal Fiscal Court (BFH) clarified that § 1(3) GrEStG does not violate EU law. Neither the free movement of capital (Art. 63 TFEU) nor the freedom of establishment (Art. 49 TFEU) is violated, as the plaintiff, being a third-country company, cannot invoke the freedom of establishment in any case.

Practical implications for companies with foreign headquarters

The ruling has significant implications for international corporate structures and cross-border restructurings:

• Companies with foreign ties must assess whether a share transfer triggers real estate transfer tax liability.
• The tax exemption under Section 6a of the Real Estate Transfer Tax Act (GrEStG) applies only under strict conditions.
• Structures with third-country connections are particularly affected, as German real estate transfer tax law does not provide for any special treatment in such cases.

Conclusion

The Federal Fiscal Court’s decision provides clarity regarding the tax treatment of share transfers related to domestic real estate holdings. Companies planning cross-border restructurings should analyze tax risks early on and, if necessary, consider alternative structures.

Real estate transfer tax remains a key factor in the tax planning of companies with real estate holdings in Germany—particularly in complex corporate structures with an international dimension.