The real estate transfer tax plays an essential role in real estate purchases. [1] The taxation of the transfers of land is different for a partnership than for a limited company. [2] Depending on the federal state, the real estate transfer tax is between 3.5 percent and 6.5 percent. [3] Due to the high tax burden of up to 6.5 percent real estate transfer tax, it has been shown in the past that the real estate transfer tax can be reduced in certain cases with the help of partnerships. [] 4]

But what advantages does a partnership have in contrast to a corporation in the Real Estate Transfer Tax Act and what requirements must be met for the benefit?

In order to be able to answer the guiding question and to allow the reader an introduction to the topic, the characteristics of the partnership and the basics of the real estate transfer tax are presented at the beginning. Subsequently, the author goes into more detail about the Property Transfer Tax Act and considers the property transfer tax in relation to other types of tax. Finally, on the one hand, the advantages of a partnership are illustrated in the Real Estate Transfer Tax Act and, on the other hand, an insight into the upcoming change in the Real Estate Transfer Tax Act.

Avoid real estate transfer tax on conversions

1st basics

1.1 Concept of partnership

Partnerships are generally created by a contractual merger of at least two persons. [5] The objective of the partnership is to achieve a common purpose. [6] In contrast to a corporation, the partnership does not have any legal capacity of its own. [7] Due to their civil law partial legal capacity acc. § 124 Abs. 1 HGB the partnership can own or acquire property. [8] The foundation of the partnership is generally formally free. [9] If a shareholder is obliged to contribute land, the articles of association shall be notarised. [10] The partners of the partnership are in principle liable personally, in solidarity and without restriction. [11] The distribution of profits of a partnership, if no contractual agreements have been made, is different for each type of partnership, so the shareholders of an OHG acc. § 121 HGB and a KG acc. §§ 167, 168 HGB, for example, in advance with four percent Their shares in the commercial profit share the rest is distributed according to heads to the shareholders. [] 12]

The partnerships include the company civil law (GbR) i. S. d. §§ 705 ff. BGB, the open commercial company (OHG) i. S. d. §§ 105 ff. HGB and the limited partnership (KG) i. S. d. §§ 161 ff. HGB.

1.2 Concept of Real Estate Transfer Tax

The real estate transfer tax is attributable to the right-hand traffic tax and records the change of legal entity of real estate. [13] The facts subject to the tax shall relate to the direct, indirect or fictitious acquisition of land. [14] An essential feature of the real estate transfer tax is that no economic turnover is required for taxation. [] 15)

1.2.1. Legal entities

Legal entity i. S. d. Real estate transfer tax law can be natural persons, legal persons and partnerships. [16] The change of legal entity can, provided the requirements of § 6 Abs. 3 GrEStG are also present in the case of a transfer between person-identical overall hand communities.[17] In the further course of the housework, the author goes into more detail about the change of legal form between person-identical overall hand communities.

1.2.2. Land

The real estate transfer tax is subject to gem. § 1 GrEStG only domestic real estate acquisitions.[18] Land in accordance with the Land Acquisition Tax Act are land under civil law, § 2 GrEStG. Other operating devices or machines according to § 2 Abs. 1 no. 1 GrEStG are excluded from the real estate transfer tax. The properties are treated as equal in accordance with § 2 Abs. 2 GrEStG Building rights, buildings on foreign land and land and special usage rights secured in rem of the Housing Property Act and § 1010 BGB. If a legal act relates to several immovable property, these are to be regarded as one immovable property if they belong to an economic unit, § 2 para. 3 p. 1 GrEStG. Even if only one or more parts of a property are addressed, § 2 Abs. 3 p. 2 GrEStG.

2nd Introduction to Real Estate Transfer Tax

2.1. Taxable legal transactions

A taxable acquisition of real estate is given if the acquired object is a property within the meaning of § 2 GrEStG and the change of legal entity acc. § 1 Abs. 1 GrEStG.

2.2. Acquisition operations

The basic prerequisite of § 1 GrEStG is the procuring of the property.[19] The possible acquisition processes are among others in § 1 Abs. 1 No. 1 to No. 7 GrEStG. This includes the commitment transaction acc. § 1 Abs. No. 1 GrEStG and the transfer of ownership according to § 1 Abs. 1 No. 3 GrEStG.[20] The purchase contract is the most common commitment transaction.[21] The purchase of land requires according to § 311b Abs. 1 S. 1 BGB of notarial deed. A violation of the formal provision leads to the nullity of the purchase contract, § 125 BGB. As a result, the commitment agreement acc. § 1 Abs. 1 no. 1 GrEStG not controllable. [22] The transfer of ownership takes place only if there is no previous legal transaction or disposition under contract. [23] The dissolution constitutes the real agreement between the seller and the acquirer, § 925 BGB. Condition for the transfer of ownership according to § 1 Abs. 1 No. 3 GrEStG is, as already mentioned, the transfer of the property from one rightholder to another.[24] This includes, for example, the transfer of ownership within the framework of the statutory succession in accordance with § 1922 para. 1 BGB.[25] The inheritance is exempt according to § 3 no. 2 GrEStG from the real estate transfer tax. [] 26]

Another fictitious acquisition process results from § 1 para. 2a GrEStG.[27] If a partnership owns a domestic property, this is subject to real estate transfer tax, provided that the shareholders' holdings are at least adequate. 95 percent, directly or indirectly, changed within five years. [28] The fictitious share transfer according to § 1 Abs. 2a S. 1 GrEStG can only be carried out on a fabricated new partnership. [29] The legal norm of the fictitious acquisition of land serves to avoid abusive design possibilities in accordance with § 42 AO.

If a corporation owns a domestic property, the provision of § 1 para. 3 GrEStG. In accordance with § 1 Abs. 3 No. 1 GrEStG min. 95 per cent of the shareholders’ shares, directly or indirectly, in the hands of the acquirer or the controlling party and united solely by dependent companies or dependent persons, is a taxable transfer of land.

A further supplementary standard, with the aim of avoiding tax avoidance, has the legislature by means of § 1 para. 3a GrEStG introduced.[31] The lower-ranking legal standard comprises the transactions i. S. d. § 1 para 3 no. 1 to 4 GrEStG, which are not in accordance with § 1 para. 2a and para 3 GrEStG. [32] From the facts of § 1 para. 3a GrEStG shows that the direct and or indirect participation, in the amount of min. 95 percent in a real estate company subject to real estate transfer tax.

The transfers of land referred to in § 3 no. 1 to 7 GrEStG are excluded from taxation. This includes, for example, the acquisition of land by persons who are primarily related to the seller or the acquisition of land by the spouse of the seller, § 3 No. 6 and 4 GrEStG.

Further tax exemptions for legal transactions whose real estate transfers are made to a collective hand contain § 5 GrEStG.[33] Real estate transfers transferred from a collective hand are also subject to the tax exemption acc. § 6 GrEStG.[34] The provisions of Sections 5 and 6 of the GrEStG are not applicable to the acquisition of land by a limited liability company.[35] If the shareholding of the vendor changes within five years after the transfer of the land, the tax exemptions acc. § 5 Abs. 1, 2 and § 6 Abs. 1 GrEStG not to apply, § 5 para. 3 and § 6 Abs. 3 GrEStG.

2.4 Base of assessment of real estate transfer tax

The basis of assessment of the real estate transfer tax is to be determined in accordance with the provisions of §§ 8 and 9 GrEStG. The subject matter of the tax base is in principle the value of the reciprocal line, § 8 Abs. 1 GrEStG. Which acquisitions are to be regarded as consideration is listed in § 9 GrEStG. If the value of the consideration cannot be determined, the real estate transfer tax is calculated on the basis of the value of the property in accordance with § 138 BewG i. 2 GrEStG.[36] Excluded from the determination of the tax base are the services transferred in a sales contract which are not immovable property. [37]

2.5. tax calculation

The real estate transfer tax rate is in accordance with § 11 Abs. 1 GrEStG 3.5 percent. The federal states can acc. Art. 105 para 2a S. 2 GG determine the amount of the tax rate itself. In North Rhine-Westphalia, for example, the real estate transfer tax rate is 6.5 percent.[38] The real estate transfer tax is to be rounded off to full euros, § 11 Abs. 2 GrEStG.

2.6. Tax liability

2.6.1. Tax debtors

Basically owed gem. § 13 no. 1 GrEStG both the seller and the acquirer the real estate transfer tax. Depending on the nature of the acquisition operation, the tax liability varies, § 13 no. 1 to 7 GrEStG. [39] In the case of the association of min. 95 percent of the shares in a company in the hands of the acquirer owes the acquirer acc. § 13 no. 5a GrEStG the real estate transfer tax. If the above-described association takes place in the hands of several companies or persons, the participants owe the real estate transfer tax, § 13 no. 5b GrEStG. If, on the other hand, the shareholding of a partnership changes, the partnership acc. § 13 no. 6 GrEStG the real estate transfer tax. In contrast to income tax, the sale or acquisition of land by a partnership is not directly attributed to the shareholders of the partnership.[40] The tax subject of the Property Acquisition Tax Act can be, for example, the GbR, OHG or the limited partnership. [] 41

2.6.2. Origin and maturity of tax

Is the effectiveness of an acquisition operation from the occurrence of a condition or Depending on an approval, the tax acc. § 14 No. 1 and 2 GrEStG with the occurrence of the condition or with the approval. In principle, the real estate transfer tax is due one month after the notification of the tax assessment, § 15 S. 1 GrEStG. The payment period can be extended by the competent tax office according to § 15 S. 2 GrEStG.

2.7. Property transfer tax in relation to other taxes

2.7.1. Inheritance and Gift Tax

Land transfers acc. § 3 GrEStG i. V. m. § 7 ErbStG by donation among living or acc. § 3 No. 2 GrEStG are not subject to property transfer tax, but to inheritance tax.[42] As a result, double taxation is excluded.[43] An exception is the donation under condition a m. § 3 No. 2 S. 2 GrEStG, this is subject to taxation with regard to the value of the condition.

2.7.2. Sales tax

In principle, land transfers ag. Section 4 No. 9 UStG is exempt from VAT. Taxpayers have according to § 9 Abs. 1 UStG the possibility to opt for VAT. Condition of turnover is carried out to another entrepreneur for his company, § 9 Abs. 1 UStG. Due to the optimization, the property transfers are subject to both sales tax and real estate acquisition tax.[44] Conversely, the taxpayer has § 15 Abs. 2 No. 1 UStG entitlement to the deduction of VAT.

2.7.3. Income tax

The property transfer tax incurred in connection with the acquisition of a property is part of the purchase costs.[45] Acquisition costs shall be depreciated together with the acquisition costs.[46] The total acquisition costs, including the acquisition costs, are to be divided pro rata into land and buildings. [47]

3. Benefits of partnership in property transfer tax law

In the further course of housework, the author uses examples to discuss the advantages of a partnership in real estate tax law. The partnership can acc. § 1 Abs. 2a GrEStG obtain tax advantages in the case of direct and indirect participation in a real estate partnership.

The direct sale or acquisition of shares in a real estate partnership is, as described above, subject to real estate transfer tax only if at least: 95 percent of the shares in the partnership will be transferred to new shareholders within five years of the acquisition. [48] If the shares are transferred only after five years, full taxation of the real estate transfer tax can be avoided. [49] If, for example, 94 percent of the shares in a partnership holding real estate have been previously acquired and the transfer of the remaining six percent of the shares takes place after the expiry of the five-year period, the combination of all shares in the company triggers real estate transfer tax in the amount of the last transferred six percent of the shares, § 1 para. 3 in V. m. § 6 Abs. 2 and 4 GrEStG.[50] The property transfer tax does not represent acquisition costs, but expenses. 51]

Also the indirect change in the shareholding of a partnership can be in accordance with § 1 para. 2a S. 2 and S. 3 GrEStG real estate acquisition tax. If, for example, 95 percent of the share in a partnership is acquired indirectly by a corporation or a partnership, in principle an acquisition transaction acc. § 1 Abs. 2a S. 3 or S. 2 GrEStG.[52] The advantage of a partnership lies in the fact that the indirect change in the participation by multiplication of the percentages of shares in the company assets must be taken into account pro rata.[53] Accordingly, in contrast to a corporation, according to § 1 para. 2a GrEStG does not provide for a taxable acquisition if a natural person acquires 95 percent of the shares in a partnership, which in turn is 95 percent in another real estate partnership. [54] In this case, the indirect change is to be assessed as 90.25 percent (=95×95 percent). [55] If, on the other hand, a corporation acquires shares in a partnership in the amount of 95 percent, which in turn holds 95 percent of a real estate partnership, a change in the shareholding acc. § 1 Abs 2a GrEStG in the real estate partnership in the amount of 95 percent. [56]

Another advantage of a partnership in real estate transfer tax law is the transfer of real estate to a total hand of several co-owners acc. § 5 Abs. 1 GrEStG or from a sole owner acc. § 5 Abs. 2 GrEStG [57] The real estate transfer tax is not charged in the amount of the share in the assets of the collective hand. [58] It should be noted that the participation rate does not change five years after the acquisition. [] 59]

The tax deduction is also due to the transition from a total hand to the rental property of several total hands acc. § 6 Abs. 1 GrEStG or § 6 Abs. 2 GrEStG into the sole ownership of a total shareholder, as well as pursuant to § 6 Abs. 3 Apply GrEStG to another total hand.[60] Co-owners or sole owners can be both natural persons, partnerships and corporations. [61] The facts of § 1 para. 1 no. 1 GrEStG shall be corrected if the legal provisions of §§ 5 and 6 GrEStG are to be applied. [] 62]

For example, if a property is transferred from a real estate partnership to another partnership and the transferring partnership holds a 50 percent stake in the assets of the acquiring partnership, the acquisition process is not in accordance with the law. § 5 Abs. 2 GrEStG but according to § 6 Abs. 3 GrEStG i. V. m. § 6 Abs. 1 GrEStG with 50 percent. [] 63]

Furthermore, the change of shareholder of a real estate partnership is in principle § 1 para. 2a GrEStG by a donation according to § 3 no. 2 GrEStG tax-free.[64] The legislature introduced the legal norm of § 3 no. 2 GrEStG in order to avoid double taxation from one and the same transaction with the inheritance or gift tax and the real estate transfer tax. [65] If, for example, a third party holds an equal share in a GbR to which a property is transferred, the real estate transfer tax is only due to the third party’s shareholding. [66] If the shares in the GbR are subsequently transferred to the children within five years, the transfer of real estate transfer tax can be carried out in a neutral manner. [67] In principle, the facts of § 5 Abs. 3 GrEStG, however § 3 no. 6 GrEStG is to be applied first. [68] The transfer of the shares to the children in accordance with § 3 No. 6 GrEStG concludes the application of § 5 Abs. 3 GrEStG from.[69]

The past has shown that due to design measures, preferably in the high-priced real estate segment, real estate transfer tax can be saved.[70] The Federal Government would like to use the draft law of the Real Estate Transfer Tax Act of 31.07.2019 to address the tax losses caused by the transfer of property. Avoid inequalities. 71]

In order to avoid abusive tax arrangements, the draft provides, among other things, for the following measures in accordance with § 42 AO. 2a, 3 and 3a GrEStG from 95 percent to 90 percent and on the other hand, the bill provides for an extension of the reservation period in accordance with § 1 para. 2a GrEStG from five years to ten years ago.[73] The extension of the period refers to the provisions of § 5 para. 3 and § 6 Abs. 3 S. 2 GrEStG. [74] Furthermore, an extension of § 6 para. 4 GrEStG is provided.[75] Accordingly, the retention period in the cases of § 6 para. 6 no. 3 GrEStG will be extended to 15 years. [] 76

The change in the law refers, for example, to the cases of § 1 para 2a GrEStG, in which taxation has not been applied, since less than 95 percent of the shares in the assets have been transferred to a new shareholder within five years and after the expiry of the period a share association acc. § 1 Abs. 3 No. 1, No. 2 or Abs 3a GrEStG. [] 77

The amended legislation is due to enter into force on January 1, 2020. [] 78]

5th Final Consideration on Real Estate Transfer Tax

The aim of the housework was to give the reader an overview of the advantages of a partnership in the Real Estate Transfer Tax Act. A partnership must consist of at least two partners. The real estate transfer tax is incurred in the event of a change of legal entity of real estate. Legal entities can be both natural persons, partnerships and corporations. The real estate transfer tax in North Rhine-Westphalia is 6.5 percent and is basically acc. § 13 No. 1 GrEStG both from the seller and from the acquirer. The tax liability mechanism can in certain cases gem. § 13 no. 1 to 7 GrEStG deviate from the principle.

In housework, among other things, the sale of shares and the acquisition of land were considered in more detail. In principle, the direct sale or direct acquisition of shares is subject to real estate transfer tax, provided not less. 95 percent of the shares in a partnership are transferred to new shareholders within five years. If only 94% of the shares are acquired beforehand and the remaining shares are acquired after the five-year period, the taxation amounts to the last six percent to be transferred. The reservation period is only defended by partnerships and does not apply to corporations. The indirect sale or indirect acquisition of shares in the amount of 95 percent in a partnership is also subject to real estate transfer tax. In contrast to corporations, partnerships have the possibility of assessing the indirect change in shareholders at 90.25 percent, instead of the original 95 percent.

The Real Estate Transfer Tax Act contains exemptions from taxation in § 3 no. 1 to § 7, § 5 and § 6 GrEStG. For example, property purchases by people who are primarily related to the seller are not taxable. If real estate transfers are made to a collective hand as defined in § 5 GrEStG or from a collective hand as defined in § 6 GrEStG, these are partially exempted from taxation. The real estate transfer tax is not levied in the amount of the share in the assets of the whole hand, provided that the shareholding ratio does not change five years after the acquisition.

Furthermore, the Real Estate Transfer Tax Act acc. § 3 No. 2 GrEStG avoided double taxation of the transfer of land within the framework of the anticipated succession.

Taking into account all the aspects listed, it shows that the partnership has various advantages over a corporation in the Real Estate Transfer Tax Act. The federal government has already drafted a bill in which the abusive tax design is to be tightened. Among other things, the upcoming change to the law includes the reduction of the participation limit from 95 percent to 90 percent and the extension of the reservation period from five to ten years.