German Real Estate Transfer Tax – Has the ECJ just established a new reorganisation relief for German RETT under the EU Capital Raising Directive?

German Real Estate Transfer Tax (RETT) is imposed not only on the direct transfer of legal ownership in real estate, but also, for example, on the direct or indirect transfer of 90% or more of the shares in real estate-owning companies, even if such share transfers do not result in a change of the ultimate beneficial owner, such as in intra-group reorganisations. Consequently, many intra-group reorganisations trigger RETT as the reorganisation relief available under domestic law has additional requirements that are often not met (requiring e.g. a transfer within a shareholding chain of at least 95% that generally has to exist five years prior to and five years after the reorganization).

This conflicts with the EU Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital (Directive). The Directive prevents member states from levying indirect taxes on “contributions of capital” and “restructuring operations”. However, by way of an exception, it allows Member States to levy transfer duties on the transfer of immovable property.

The German Federal Tax Court (FTC) has to date held that the Directive does not prevent Germany from levying RETT on indirect transfers of immovable property by way of share transfers in real estate-owning companies, inter alia, because it views this taxation as a transfer duty on the transfer of immovable property that is permitted under the aforementioned exception included in the Directive. Despite existing case law of the European Court of Justice (ECJ) suggesting that the tax triggered by a transfer of shares does not qualify as such a transfer duty within the meaning of the Directive, the FTC has not referred the question to the ECJ. A constitutional complaint against this judgment is currently pending before the German Federal Constitutional Court. 

In a preliminary ruling procedure concerning a Portuguese tax that is similar in structure (C-837/24 – Nova Iberomoldes), the ECJ has now clearly rejected this view. Disagreeing with the opinion of (German) Advocate General Kokott and the view of the German and Portuguese governments, the ECJ held that - in the context of transactions in-scope of the Directive - only taxes on a direct transfer of legal ownership in real estate itself are permitted. In the ECJ's view, direct or indirect transfers of shares in companies holding such real estate do not constitute such a direct transfer of legal ownership. Consequently, levying the Portuguese tax on the transfer of real estate as a result of a transfer of shares in a real estate-owning company in the course of a business reorganisation within a group of companies is precluded by the Directive.

This ECJ judgment will have a significant impact on RETT in the case of share-for-share transactions, (share) contributions and other reorganisation measures. The current case law of the FTC cannot be upheld. Germany will have to exempt such transactions from RETT much more broadly. The ECJ might effectively have introduced a new RETT relief for reorganisations that is much less restricted than the relief available under domestic German RETT law.

While decisions by German courts (including the Federal Constitutional Court) and potentially the German legislator are still outstanding, taxpayers should review whether they have been subject to RETT on transactions falling within the scope of the Directive and, if still possible, file objections to or request amendments of RETT assessments concerning such measures. Furthermore, the Directive should be considered when structuring reorganisations, contributions etc., although it is not advisable to rely on it before the dust has settled.

This blog post considers the relevant principles of the Directive, the status of the legal discussion in Germany as well as the recent ECJ judgement, its impact on German RETT and practical guidance.

Principles of the Directive

The Directive generally prohibits indirect taxes especially on “contributions of capital” to “capital companies” and “restructuring operations” involving “capital companies”. It prevents member states from imposing indirect taxes that could hinder the free movement of capital, especially in the context of corporate restructurings. EU Member States were required to implement the Directive by 31 December 2008 (and the predecessor directive (EU Council Directive (69/335/EEC)) had already set similar – though more limited – restrictions).

The Directive applies to “capital companies” (further defined in Art. 2). Among others, any company, firm, association or legal person operating qualifies as a capital company for the purposes of the Directive. The personal scope is to be interpreted broadly; it includes certain corporations and partnerships. The Directive does not require any international or cross-border element and also applies in favour of companies resident in third countries outside the EU (background: globalization of the free movement of capital).

Pursuant to Art. 5(1) of the Directive, EU member States shall not levy any form of indirect tax whatsoever on “capital companies” in respect of “contributions of capital” and “restructuring operations”.

The conditions set out in the Directive for a “contribution of capital” to “capital companies” (further defined in Art. 3) or a “restructuring operation” involving “capital companies” (further defined in Art. 4) must be met.

• Contributions of capital include, among others, (i) the formation of a ”capital company”, (ii) contributions of assets that increase the capital of a “capital company” and (iii) increases in a “capital company’s” assets through services of a shareholder which may increase the value of the company’s shares.
   
• Certain contributions of capital are re-characterized as “restructuring operations”, namely the transfer of (i) all assets and liabilities of a “capital company”, (ii) one or more branches of activity of a “capital company” or (iii) majority of the shares in a ”capital company”, in each case to one or more “capital companies” being formed or already in existence and in consideration of (at least in part) shares in the acquiring company. “Restructuring operations” also include the transfer of all assets and liabilities of a “capital company” to its parent company.
   
• In contrast, ordinary sales and purchases of shares (share deals) are not covered by the Directive.

Art. 6 of the Directive provides for certain narrow exceptions to the general prohibition on levying such indirect taxes. In particular, it permits “transfer duties, including land registration taxes, on the transfer, to a capital company, of businesses or immovable property situated within their territory” (see Art. 6(1)(b) of the Directive).

Status of the legal discussion in Germany

Even before the recent judgment of the ECJ in the Nova Iberomoldes case, a proper reading of the Directive and the available ECJ case law (in particular the order of 6 October 2010 – C-487/09 – Inmogolf) as well as the available expert literature in Germany pointed to the conclusion that RETT on capital contributions or restructuring operations may only be levied on direct transfers of immovable property (i.e. where the legal ownership in the property is transferred), but not on indirect transfers of real estate by way of share transfers (i.e. where the ownership in the real estate does not change). 

Thus, following this view, if a transfer of shares in a real estate-holding company qualifies as a capital contribution or a restructuring operation, Germany would be prevented from levying RETT even if, under domestic law, such transfer would be subject to RETT. For example, if a German company holds all shares in a German limited liability company (a GmbH) that owns German real estate and contributes all shares in this GmbH to a German stock corporation (an AG) in exchange for a shareholding of, e.g., 50% in that AG, this would in principle trigger RETT on the indirectly transferred real estate under domestic RETT law. However, as such a transaction should qualify as a restructuring operation or capital contribution, the Directive should prevent the German tax authorities from levying such RETT.

Nevertheless, the German tax authorities and the German tax courts have to date taken a different position. In its most recent judgment of 25 September 2024 (file number II R 36/21), the FTC took the view that the Directive does not apply to RETT imposed as a consequence of a transfer of shares in corporations or partnerships that own real estate, i.e. RETT levied pursuant to Sections 1(2a), (2b), (3) and (3a) of the German RETT Act (Grunderwerbsteuergesetz). The FTC held that RETT is not levied as an indirect tax on a capital contribution or restructuring operation but rather is levied as a tax on the fictional transfer of ownership in real estate which – in the FTC’s view – does not fall within the scope of Art. 5 of the Directive. Moreover, the FTC held that Art. 6(1)(b) of the Directive permits member states to levy indirect taxes where the chargeable event is objectively linked to the transfer of ownership of immovable property. On this basis, the FTC concluded that the provision applies to the transfer of shares in corporations owning real estate located in Germany. 

While this judgment of the FTC might have been in line with the FTC's own judgment of 19 December 2007 (file number II R 65/06) regarding the predecessor directive, it already conflicted with ECJ case law existing at the time, in particular the ECJ’s decision in the Inmogolf case (order of 6 October 2010 – C-487/09). In Inmogolf, the ECJ held, inter alia, that it is not relevant that the tax is levied with respect to real estate if the tax is triggered by a share transfer. In light of this ECJ case law, the FTC should at least have referred the matter to the ECJ for a preliminary ruling. It is therefore not surprising that a constitutional complaint is pending against the aforementioned FTC judgment. 

ECJ judgment in Nova Iberomoldes

The Portuguese courts took a different approach than the FTC and referred a case concerning real estate transfer tax levied by Portuguese municipalities (Imposto Municipal sobre as Transmissoes Onerosas de Imóveis, IMT, structurally comparable to German RETT), which was levied on a share-for-share transaction, to the ECJ (C-837/24 – Nova Iberomoldes). A company (parent company) holding all shares in another company that owned Portuguese real estate (real estate-owning company) contributed, among others, all shares in the real estate-owning company to a newly formed company; as consideration, the parent company received all shares in the newly formed company. The Portuguese courts wanted to know if the Directive prevented Portugal from levying this tax. On 4 June 2026, the ECJ rendered its judgment in these preliminary ruling proceedings. 

Consistent with the principles already outlined in the Inmogolf case, the ECJ has now settled these issues. The ECJ held that the Directive precludes national legislation under which a share-for-share transaction of the kind at issue – which falls within the scope of the Directive and concerns a company owning real estate – is subject to tax on the basis of the value of the real estate. The ECJ did not agree with the arguments of the Portuguese and German governments that the taxable event was the de facto transfer of ownership of real estate and was therefore not covered by the Directive. 

The ECJ also considered the exemptions under Art. 6 of the Directive. In particular, it did not apply Art. 6(1)(b) because there was no transfer of the legal ownership of the real estate and – even if it were necessary to take an economic perspective – no transfer of the ultimate beneficial ownership (in the words of the English version of the ECJ decision “actual ownership”) had taken place, given that the case at hand concerned a business reorganisation within a group of companies. Levying the IMT was also not justified by the objective of preventing tax evasion and avoidance because the Portuguese IMT applied irrespective of whether or not there was concrete evidence of a fraudulent or abusive practice.

Impact of the ECJ judgment on German RETT

The ECJ’s judgment in Nova Iberomoldes will have a significant impact on German RETT. The practical relevance of this issue becomes apparent in typical cases of share contributions and reorganisation measures, e.g.: 

• A-GmbH has held – for less than five years – all shares in B-GmbH. B-GmbH and/or its subsidiaries own German real estate. A-GmbH contributes all its shares in B-GmbH to C-GmbH by way of the formation of C-GmbH, a non-cash capital increase (Sachkapitalerhöhung), a hidden contribution (verdeckte Einlage) or a spin-off (Ausgliederung).
   
• D-GmbH has held – for less than five years – all shares in E-GmbH. Subsidiaries of E-GmbH own German real estate. E-GmbH is merged (verschmolzen) into D-GmbH. 

All these examples could also be modified to include certain partnerships, foreign “capital companies” and/or comparable foreign measures.

Under current German tax law, such cases are subject to RETT; no exemption pursuant to Section 6a of the RETT Act (relief for group reorganisations) is available, given that the respective parent company has held its shares in the respective subsidiary for less than five years and/or because the contribution did not occur within a shareholding chain of 95% or more. 

This – as has now been confirmed by the ECJ – contradicts the Directive, pursuant to which Germany is prevented from levying RETT in these examples. With its judgment, the ECJ may thus have effectively created a new reorganisation relief for German RETT.

Practical guidance

While decisions by German courts (including the Federal Constitutional Court) and potentially the German legislator are still outstanding, taxpayers should review whether they have been subject to RETT on transactions that could fall within the scope of the Directive and, if still possible, file objections to or request amendments of any RETT assessments concerning measures which could fall within the scope of the Directive. Furthermore, the Directive should be considered when structuring reorganisations, contributions etc., although it is not advisable to rely on it before the dust has settled.

If you would like to discuss any of the points raised in this blog post in further detail, please contact the authors or your usual Freshfields contact.