Update on the German real estate transfer tax reform
25 October 2019
Quite surprisingly, the members of the German government coalition (CDU/CSU and SPD) have agreed yesterday to not vote on the German real estate transfer tax (RETT) reform in the German Bundestag this week as originally intended but to postpone the reform in order to further analyse and discuss the provisions of the draft bill.
In particular, the findings from the public hearing in the finance committee (Finanzausschuss) of the Bundestag early last week shall be fully taken into account. According to a press release of the parliamentary group of the CDU/CSU the real estate transfer tax reform shall therefore only be implemented in the first half of 2020.
As the recent draft bills – despite originally deviating intentions of the German Federal States – did not foresee a retroactive application of the reform package, in our view it can therefore be reasonably expected that the reform will not come into effect (retroactively) as per 1 January 2020. Fortunately, for all transactions currently contemplated under the existing RETT rules this may take away some pressure with regard to timing the relevant Closing. Furthermore, this could be beneficial also for past transactions with option arrangements on partnership interests if the 5 year holding period under the current rules is fulfilled within the first months of 2020. It remains unclear, however, what the new effective date of the RETT reform will be. Furthermore, it cannot completely be excluded that the bill will nevertheless foresee a retroactive effect as of 1 January 2020. Also, it may be keenly awaited whether and to which extent there will also be major changes to the reform package content-wise.
Due to the outstanding practical impact on the transaction practice we will of course keep you updated about any new developments.