Germany: Legislature Responds To BFH Judgments Regarding Indirect Change Of Shareholders Under Sec. 1 Para. 2a German Land Transfer Tax Act ("GrEStG")

Last Updated: 9 March 2016
Article by Susan Günther

With the Tax Amendment Act of 2015, the legislature clearly rejected the view of the BFH that an economic perspective with reference to sec. 39 AO is crucial to the assessment of an indirect change of shareholders under sec. 1 para. 2a GrEStG. The revision instead codifies the view of the fiscal authorities. The extent of the indirect change of shareholders in a partnership company will be determined in future based on the legal form of the shareholders.


According to sec. 1 para. 2a GrEStG, the direct or indirect transfer of at least 95 percent of the shares of the partnership assets of a land-owning partner-ship to new shareholders is subject to land transfer tax payable within five years, since this constitutes a legal transaction aiming at the transfer of a property to a new partnership.

In relation to determining the transferred stake in the event of a direct transfer of shares in a land-owning partnership, there is no dispute between the fiscal authorities and case law that only a civil-law approach is applicable.

Case law takes a different view in the case of an indirect change of the shareholders in a land-owning partnership. Already in its judgment dated April 24, 2013 (II R 17/10) the BFH held that only an economic approach could be considered in the case of an indirect change of shareholders. This applies in-dependently of whether the shareholders of the land-owning partnership are corporations or partnerships. In its grounds for decision, the BFH particularly criticized the fact that the law does not include an explicit regulation of the extent that satisfies the conditions for an indirect change of shareholders under sec. 1 para. 2a (1) GrEStG, previous version. The BFH closed this discovered loophole with the above-described economic approach. The fiscal authorities responded to this judgment with a non-application decree.

Following up on the above judgment from 2013 with another judgment (II R 49/12) dated 9 July 2014, the BFH confirmed its view that only economic factors are decisive in examining a change of the indirect shareholders. The BFH further argued in the more recent judgment that only the principles of beneficial ownership under sec. 39 para. 2 (1) AO should be consulted for such an approach. According to the argumentation of the BFH, the crucial point for the allocation decision is whether firstly the purchaser achieves a legal position that can no longer be unilaterally withdrawn and further, whether and to what extent essential rights linked to the interest, as well as the risk of loss of value and the opportunity for appreciation of value for the interest, are passed on to a new shareholder.

The above-mentioned judgments of the BFH are extremely controversial in the literature. In particular, the prevailing view has been that sec. 39 para. 2 (1) AO is fundamentally not applicable in land transfer tax law. After all, the legislature deliberately struck the element "under economic considerations" from the wording of the act in the revision of sec. 1 para. 2a GrEStG dated 1 January 2010. Moreover the scope of the above-mentioned decisions is unclear. The literature has particularly discussed the question of whether and to what extent the principles set forth by the BFH are also applicable to the interpretation of the term indirect transfer of interest under sec. 1 para. 3 GrEStG and sec.1 para. 3a GrEStG.


Already after the BFH judgment of 2013 there were attempts by the legislature to make the regulations for indirect change of partners under sec. 1 para. 2a (1) GrEStG more specific. Not in keeping with an economic approach corresponding to the BHF's opinion, however, but drawing instead on the already existing application decrees of the fiscal authorities. The implementation failed in 2014 only because of the dispute over the permissibility of retroactive enforceability of the new supplementary regulations.

In light of the new and more extensive BFH decision from 2014, the German Bundesrat passed on 16 October 2015 the draft legislation for the Tax Amendment Act of 2015 ("StÄndG 2015"), which had been debated on second and third reading by the German Bundestag on 24 September 2015. The starting point for the now-passed StÄndG 2015 was the Act on Adaptation of the Tax Code to the Tariff Code of the Union and for Amending Further Fiscal Regulations of 22 December 2014. The revision is not retroactive, but rather comes into force on the date of proclamation of the StÄndG 2015. Since publication in the German Federal Gazette took place on 5 November 2015, the revision must now be applied to relevant transactions that have been and will be implemented after that date.

According to the StÄndG 2015, the existing legal regulation is extended as follows (abridged):

"Indirect changes of the shareholders of partnerships with interests in a partnership shall be taken into consideration by multiplication of the percentages of shares in the partnership assets [...] A directly participating corporation is considered a new shareholder in full, if more than 95 percent of the shares are transferred to new shareholders. [...]"

This supplemental legal regulation codifies the opinion held by the fiscal authorities and clearly rejects the economic approach of the BFH. The crucial fact in the future for the decision as to whether an indirect change of shareholders subject to sec. 1 para. 2a GrEStG, new version exists, will thus be whether the shareholders of the partnership are a partnership or a corporation.

If a partnership has a direct interest or if there is an indirect interest via multilevel partnerships, the respective equity interest conditions must be considered. Then there would be a calculated allocation.

In case an interest is held by a corporation, the prerequisites for an indirect change of shareholders are met if there is a direct or partially direct and partially indirect change of interest in the corporation of at least 95%. In case of a multilevel shareholding by corporations, the examination must be undertaken separately for each level of holdings. If the 95 percent limit is reached, then the indirect holding must considered in full (and not only in the amount of 95 percent).

If there is a mixed shareholding structure with corporations and partnerships, then the interests for partnership shareholders are calculated directly and the 95 percent limit must be considered on the level of corporate shareholders.


The taxpayer must now adjust back to the previously applicable opinion of the fiscal authorities and can no longer align investment decisions with the BFH decisions from 2013 and 2014. Since the legislature has currently forgone (the originally planned) retroactivity, acquisitions prior to the proclamation date of the StÄndG 2015 are fundamentally not subject to the new supplemental regulation and to that extent can rely on the BFH case law. The taxpayer should have future investment decisions fiscally reviewed and thus adjust to the conditions that prevail according to the StÄndG 2015.

Originally published 9 March 2016

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