Switzerland: Implications of Germany’s real estate transfer tax for Swiss funds

Listed Swiss real estate funds and companies may be at a disadvantage.

Listed Swiss real estate funds and companies may be at a disadvantage.

The EU has denied Switzerland stock market equivalence and, as an indirect consequence, listed Swiss real estate funds and companies could have to pay transfer taxes on their real estate investments in Germany if at least 90% of their shares change hands within 10 years.

Reform of the real estate transfer tax regarding share deals in Germany

Under pending proposals, beginning 1 July 2021, the transfer tax on German real estate (similar to Switzerland’s Handänderungssteuer) is expected to also be levied if at least 90% of the shares in a corporation that owns real estate change hands, directly or indirectly, within a rolling 10-year time frame. The aim of this reform to German law is to put a stop to certain tax avoidance structures. Read TaxNewsFlash

Until now, real estate share deals (unlike asset deals) could be structured in such a way that the real estate transfer tax—set at between 3.5% and 6.5% of the purchase price depending on the location or federal state—did not apply. To accomplish this, a co-investor, who was neither indirectly nor directly controlled by the buyer, would hold a minimum share of 5.1% (for example). Artificial structures were then developed in practice with the purpose of saving on tax.

The pending German real estate transfer tax reform is designed to negate these structures. As such, it would no longer be possible to acquire all shares of a company immediately by involving a co-investor without paying real estate transfer tax. The “collateral damage” resulting from this change could be significant, given that the new measures could also affect every industrial company that happens to own real estate. This consequence could be mitigated to an extent by the introduction of a stock market clause. Transfers of shares and fund shares that take place on certain stock markets or at other trading venues would not count and would not trigger the real estate transfer tax.

Listed investment vehicles

The fact that real estate companies would be liable to pay tax when their shares (indirectly) change hands means that these companies would have increased obligations regarding disclosure and the provision of information.

A “stock market clause” in the pending measures only covers real estate funds and companies that are listed on the stock market in an EU or EFTA country or at a stock exchange that is based in a third country which has been declared equivalent by the European Commission. As is well known, the EU denied Switzerland stock market equivalence as part of the disputes surrounding the framework agreement with the EU.

As a consequence, real estate funds and companies that are listed in Switzerland—and also any other entities that cannot apply the exemption—could soon face potentially hefty transfer tax bills on a regular basis while they own real estate in Germany.

Read an April 2021 report prepared by the KPMG member firm in Switzerland



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