In the Real Estate Transfer Tax Act (RETTA), a new Section 1 para. 4a RETTA has been introduced to create legal certainty and clarity by establishing for the first time the statutory regulation of when a property is allocated to an entity for the purposes of taxation of share deals with German RETT (so-called real estate transfer tax allocation).

A property shall be allocated to an entity from the point in time when it has acquired it through a legal transaction pursuant to Section 1 para. 1 RETTA (e.g., acquisition by concluding a property purchase contract – “asset deal”). The allocation shall end when another legal entity has acquired the property through a legal transaction pursuant to Section 1 para. 1 RETTA (e.g., resale of the property via asset deal) or when the reason for the allocation under Section 1 para. 4a sentence 1 RETTA is terminated.

Additionally, allocation can also be established by holding a right of utilisation pursuant to Section 1 para 2 RETTA. If the conditions for this no longer exist, the allocation shall end.

Contrary to the previous case law and administrative instructions (German Federal Fiscal Court rulings II R 44/18, II R 33/20, II R 40/20 and Guideline from the tax authorities dated 16 October 2023), the realisation of a taxable share deal pursuant to Section 1 para. 3 or 3a RETTA (so-called unification rules) shall no longer lead to the property allocation to the share acquirer. As a result of such a share deal, the previously considered (and controversially discussed) double allocation of properties to two entities will no longer be possible.

To prevent abusive structures, the allocation rules of Section 1 para. 4a sentences 1 and 2 RETTA shall not apply to legal transactions or properties that are reversed pursuant to Section 16 para 1 RETTA or reacquired pursuant to Section 16 para. 2 RETTA insofar as this results in the avoidance of an acquisition transaction (e.g., if the share deal takes place between the sale of the property and the reversal or reacquisition). The reversal or reacquisition shall be considered a retroactive event pursuant.

The provision is to be applied for the first time to acquisition transactions pursuant to Section 1 para. 2a to 3a RETT that are closed after the day of the publishing of the Annual Tax Act 2024 in the Federal Law Gazette which is expected soon.

The Annual Tax Act 2024 includes a regulation which clarifies the RETT treatment of property drop downs into partnerships. In principle, a drop down of a property into a partnership is RETT exempt to the extend the transferring entity holds interest in the partnership. However, in case of a dropdown, a 10-year clawback period needs to be considered after the dropdown. During this period the interest in the partnerships must not transferred as otherwise RETT would be triggered accordingly.

The regulation included in the Annual Tax Act 2024 stipulates that the mere change of the law for the modernisation of partnership law (so-called MoPeG) does not result in a violation of ongoing clawback period for transfers completed by 31 December 2026. The clawback period remains in effect and is only violated if the interest in the partnership's assets decreases within the clawback period.

The new regulation includes the possibility to demonstrate a value of a property for land tax purposes that is below the determined land tax value in the federal model. This provision is intended as a response to the decisions of the German Federal Fiscal Court dated 27 May 2024 and is substantively based on the Coordinated Decrees of the tax authorities.

The Annual Tax Act 2024 contains a new regulation concerning the simple trade tax deduction for real estate according to Section 9 No 1 sentence 1 of the Trade Tax Act. Starting from the 2025 assessment period, the simple trade tax deduction for real estate will accordingly be based on the land tax actually recorded as a business expense during the assessment period for the property and no longer on the land tax value. This aims to take into account the individual land tax regulations of the Federal States as part of the German Land Tax Reform.

The simple trade tax deduction is applicable in all cases where the requirements of the extend trade tax deduction are not fulfilled.