Current situation: Double attribution of real estate through acquisition of an interest in an entity Acquiring an interest in a German entity with German real estate can be a complex and costly process due to German RETT. It is important to note that German RETT can be triggered not only by acquiring real estate itself, but also by attaining shares of an entity that owns German real estate. This means that if it is planned to acquire 90% or more interest in a real estate owning entity or to increase an existing shareholding to 90% or more within ten years, German RETT will be triggered.

In addition, German RETT is generally triggered twice in this process due to the so-called "Signing-Closing-Theory" advocated by the German tax authorities. According to this theory, RETT is initially triggered upon Signing, with the acquirer of the interest being the RETT debtor. Upon Closing the transaction, RETT is triggered again, with the real estate owning entity being the RETT debtor. This leads to a double taxation based on the same transaction.

To address this issue, the German tax authorities have recently introduced a standard to cancel the RETT assessment at Signing, ensuring that the tax is effectively only payable once at Closing. However, meeting the administrative and formal requirements within a short period of time after each event to ensure the cancellation of the RETT assessment at Signing can be challenging, increasing the risk of double taxation.

Also, another significant problem arises – the double attribution of real estate for the purposes of German RETT. In cases where Signing and Closing do not occur simultaneously, which is often the case, the real estate is attributed twice, due to the realisation of the alternative RETT triggering event of Signing. This means that the real estate is attributable to both, the real estate owning entity and the entity that acquired an interest in the real estate owning entity (referred to as the "real estate attributed entity").

This can create complications, especially regarding future reorganizations. Not only can a change of interest at the level of the real estate owning entity trigger RETT, but also any interest changes at the level of the real estate attributed entity, even if the interest in the real estate owning entity or the real estate itself remains unchanged. Therefore, it is currently crucial to not only consider whether real estate assets are owned, but also whether real estate can be attributed to an entity simply because it holds shares in a real estate owning entity when undergoing any restructuring processes.

Drafted amendment – No more double real estate attribution due to Signing The recently released draft of the German Annual Tax Act 2024 proposes a new provision, which aims to simplify the attribution rules for real estate and is supposed to prevent the issue of double attribution. According to the new regulation, real estate can only be attributed to an entity if it was acquired under the basic facts of the German RETTA, e.g., such as the direct acquisition of the real estate. This means that Signing should no longer lead to a separate attribution of real estate to the interest acquiring company. For the future the real estate would only be attributed to the entity that actually owns the real estate, and no longer fictitiously to other entities as well.