Treatment of share deals likely to come under coalition focus

As Germany’s coalition partners the SPD and the CDU/CSU union look set to finally agree on a new programme for government, there may finally be some movement in attempts to address the issue of share deals when buying property. Companies have long avoided the local Grunderwerbsteuer, or land transfer tax, by availing of exemptions available when the assets are bought as part of a share deal. The tax varies from state to state in Germany, but is as high as 6.5% in a number of states, with others looking to raise their own rates to boost state coffers.

Mutterings from the potential new government partners as to how these alleged fresh tax revenues will be used to lower overall tax rates have been countered by industry bodies. The ZIA Zentraler Immobilien Ausschuss, the country’s main real estate lobbying association, was quick out of the starting blocks to warn of further demonisation of share deals. According to ZIA president Dr. Andreas Mattner, “Share deals are an important instrument in our industry, for example to ensure that a piece of land within a project development is not doubly burdened with the transfer tax. RETT blockers are also important to prevent real estate restructurings within a company becoming liable for the transfer tax, which are often necessary.

“The coalition partners appear not to have considered these, instead constantly referring to ‘tax evasion tricks’. Share deals are legitimate forms of transaction, and are often availed of by municipalities and the federal states themselves,” said Mattner. It is the actual high level of the property transfer taxes that is driving property prices upwards, and penalises all users of property, he said.

He also expressed the view that it was naive to assume that the existing high levels of the transfer tax would be lowered in the event of the abolition of the share deal exemption. “The federal states would be well advised to consolidate their household budgets. If land and company-owned real estate portfolios were to incur multiple taxation in the absence of share deals, the federal states would simply hold on to this extra taxation revenue. Over the last ten years 14 of the 16 federal states have raised their property transfer taxes from the original 3.5% to up to 6.5%”, he said.

There is a peculiar German reason why the individual states are motivated to act as they do, and it has to do with the so-called Finanzausgleichsystem, whereby the more prosperous German states pay to support the less prosperous states, to ensure a more even standard of living across the country. Revenues raised by the property transfer tax are excluded from a state’s tax revenues for the purpose of determining whether a state is a net payer or recipient of funds from the system - automatically providing an incentive to raise as much as possible from the sales of property, and holding on to it.