German Federal Fiscal Court severely tightens framework for acquisition structures by using beneficial ownership as the standard for the attribution of indirect participations.

Key Subject of the Decision -

With a ruling published on 10 September 2014, the Federal Fiscal Court has severely tightened the framework for many structures which aim to avoid real estate transfer tax upon transfer of partnership interests. Real estate transfer tax is triggered irrespective of the seller continuing to hold more than five percent of a real estate holding partnership, if such partnership interest is to be attributed to the purchaser from an economic perspective. The decision of the II. Senate of the Federal Fiscal Court addresses the impact of contractual instruments between the interest holder of a minority interest in a property owning partnership and a third party acquirer on the allocation of the minority partnership interest and, consequently, on the indirect change of ownership under Sec. 1 para. 2a Real Estate Transfer Tax Act (RETTA). In the case at hand, such contractual instruments led to an economic allocation that differs from the civil law situation.