By Ayla Ilicali & Nicole Waldhauser

In a recent decision1, the Independent Finance Board Innsbruck (Unabhängiger Finanzsenat) questions a well-established practice for reducing taxes related to real estate transactions. Until the Highest Administrative Court (Verwaltungsgerichtshof) issues a final decision (not expected for at least two years), parties to real estate transactions will not have legal certainty and will need to act with caution when drafting agreements.

The transfer of land in Austria entails a land transfer tax (Grunderwerbsteuer) of 3.5%2 and a registration fee (Eintragungsgebühr) payable to the competent District Court of 1%. The basis for calculation is the purchase price including any other benefits, such as an assumption of debts. If the transfer is free, the calculation basis is the assessed tax value (Einheitswert).

The established model

Up to now, it was common practice to avoid land transfer taxes and registration fees by transferring the shares in a company holding the real estate. For this purpose, as a first step, a limited liability company is set up and the respective land contributed to the company. Such a contribution also gives rise to land transfer taxes and registration fees; the calculation, however, is based on the triple assessed tax value, which is usually far below the market value.

The acquisition of shares in a company holding real estate is tax free unless 100% of shares are being transferred and held by only one legal entity. Therefore, as a standard model, the shareholding was split and a "mini-share" of 1% or less was held in trust by an attorney or an affiliated company. No registration fee is due as the legal entity holding the real estate remains the same and no registration with the land register is required. The legality of such practice has been consistently upheld by the courts.

The Independent Finance Board ruling

Lately, however, the Independent Finance Board has ruled differently. In the present case, a father sold 99% of his shares in a company holding real estate to his son and retained 1%. In an escrow agreement the father agreed to hold the "mini-share" in trust for the son. The Independent Finance Board argued that such structuring is illegal because it seems, in light of the intended economic goal, unusual and merely chosen for tax evasion reasons. All non-tax-related economic grounds for the chosen model have been deemed insufficient by the authority and the contracting parties have incurred land transfer taxes.

Ongoing uncertainty

A final decision is currently pending before the Highest Administrative Court and is not expected for at least two years. Therefore, for the time being, share deals should not be structured with a trustee, as no legal certainty can be guaranteed. If shares of a real estate company are split and transferred, the economic reasons behind such structure should be thoroughly documented so as to avoid suspicions of tax-evasion.

This article was originally published in the schoenherr roadmap`11 - if you would like to receive a complimentary copy of this publication, please visit:


1 RV/0226-I/09 (25.6.2010)

2 Between family members the rate is reduced to 2%.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.