Real estate gains tax: blocking periods, despite tax neutrality for restructuring real estate companies

According to the law, profit tax-neutral restructurings in the area of property gains tax are to be treated as tax deferrals. Consequently, no real estate gains tax may be levied in the case of tax-neutral restructurings.

There are no statutory lock-up periods for mergers and demergers, but there are individual tax lock-up periods for asset transfers within the group and spin-offs, among other things.

However, caution is advised in the case of restructurings in which real estate companies are involved, as according to the current practice of the property tax offices, restrictions may nevertheless exist with regard to a subsequent sale, which is explained in the examples below.

Merger of a real estate company with an operating company

A merger of a real estate company (IG) with an operating company (BG) is possible with no profit tax consequences. Prior to the merger, the sale of a majority shareholding in the IG would constitute an economic change of ownership with property gains tax consequences. Assuming that the merged company qualifies as an operating company based on the specific circumstances (with subordinate real estate activities), a subsequent sale of the (merged) participation no longer constitutes an economic change of ownership. Accordingly, the participation should be able to be sold without property gains tax consequences, especially as there is no legal basis for taxation or a lock-up period. However, such disposals (within five years of the merger) are regularly the focus of the property tax authorities; in particular, it can be investigated whether the merger and subsequent disposal do not constitute tax avoidance and whether any restrictions could come into question. The possible con-sequences are that a lock-up period for disposals continues to exist or even a five-year “special” lock-up period for disposals that is not regulated by law could be demanded - especially if the matter is dealt with as part of a ruling request.

Quasi-merger of a real estate company and reduction in shareholdings

In principle, a quasi-merger of an IG and a simultaneous reduction in the shareholding ratio of the previous shareholder can be carried out in a profit tax-neutral manner. The resulting property gains tax problem is that the shareholder in the desired target structure only holds a minority interest, which, however, corresponds in value to his previous 100% interest in the IG. Consequently, in the event of a subsequent sale of the shareholding, there is no economic change of ownership, as only a minority shareholding is sold and not a majority shareholding. Consequently, provided there is no circumvention, the shareholder should in principle be able to sell his participation without incurring property gains tax. However, as in the previous example, the property tax authorities will also examine a sale carried out within five years of the merger more closely in such cases and examine any restrictions in terms of a “blocking period”.

Conclusion

Although tax-neutral restructurings have also been established in the area of real estate gains tax and there are no lock-up periods for demergers, tax “lock-up periods” for real estate transactions must still be kept in mind. With regard to real estate companies, there is a possibility that, despite a restructuring that is tax-neutral for real estate gains tax purposes and possible without a lock-up period for other taxes, the real estate tax authorities could raise the issue of a lock-up period.