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The Federal Tax Court issued an interlocutory ruling dated 4 December 1996 (BFH BB 1997, 137) that the conversion of a partnership into a corporation and vice versa does not cause the real property of the entity being converted (reorganised) to pass to a new owner and hence does not trigger real estate transfer tax (see detailed report in article no. 63).

The tax authorities have now abandoned their opposition to this viewpoint. The Finance Ministry of Baden-Wuerttemberg has issued a so-called coordinated all-state directive valid throughout Germany to this effect (DB 1997, 2002 - 18 Sept. 1997). The capitulation of the tax authorities was compelled by numerous lower court rulings adopting the arguments of the Federal Tax Court.

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