Accrued Property Transfer Tax May Apparently Still Be Immediately Tax Deductible - Germany
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Up to now, it was not clear from a tax law perspective whether accrued property transfer tax constitutes incidental acquisition costs or an expense that is immediately tax deductible when there is a change to the composition of partners.
It is fundamental in the context of property acquisition to distinguish whether real estate is being acquired entirely new or was already in the partnership’s possession.
In the latter case, property transfer tax can apparently be regarded as immediately tax deductible operating costs, at least in the view of the judges of the Münster Finance Court in their ruling of 14 February 2013 (Az.: 2 K 2838/10).
The Court was faced with a case in which the claimant had acquired the entirety of the limited partnership interests in a limited partnership. In doing so, property transfer tax appeared to accrue with respect to the real estate transferred to the claimant, whose competent tax office seemingly declared it to be incidental acquisition costs. After the dissolution of the limited partnership, the claimant was subsequently asked to pay these costs as its legal successor.
The judges regarded this as unlawful, as they did not start from the assumption that the real estate had been newly acquired. The judges appeared rather to place definitive emphasis on there being no new acquisition of real estate in the instant case. In the view of the Court, the assignment of the real estate had not in fact been altered from a civil law point of view, since they formed part of the assets of the limited partnership both before and after the change to the composition of partners. The judges also clearly emphasized that no purchase transaction had in fact taken place. Such a transaction is simulated merely for property transfer tax purposes. Consequently, the claimant was entirely absolved of paying the incidental acquisition costs.
Partners who are similarly soon to be faced with a change to the composition of a partnership should therefore act cautiously. Legal advice from a lawyer versed in tax law is essential where there are uncertainties.
ABOUT THE AUTHOR: GRP Rainer LLP
GRP Rainer LLP is an international firm of lawyers and tax advisors who are specialists in commercial law. The firm counsels commercial and industrial companies and corporations, as well as associations, small- and mid-sized businesses, self-employed freelancers and private individuals worldwide from offices in Cologne, Berlin, Bonn, Dusseldorf, Essen, Frankfurt, Hamburg, Hannover, Munich, Stuttgart, Bremen, Nuremberg and London UK.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
In the latter case, property transfer tax can apparently be regarded as immediately tax deductible operating costs, at least in the view of the judges of the Münster Finance Court in their ruling of 14 February 2013 (Az.: 2 K 2838/10).
The Court was faced with a case in which the claimant had acquired the entirety of the limited partnership interests in a limited partnership. In doing so, property transfer tax appeared to accrue with respect to the real estate transferred to the claimant, whose competent tax office seemingly declared it to be incidental acquisition costs. After the dissolution of the limited partnership, the claimant was subsequently asked to pay these costs as its legal successor.
The judges regarded this as unlawful, as they did not start from the assumption that the real estate had been newly acquired. The judges appeared rather to place definitive emphasis on there being no new acquisition of real estate in the instant case. In the view of the Court, the assignment of the real estate had not in fact been altered from a civil law point of view, since they formed part of the assets of the limited partnership both before and after the change to the composition of partners. The judges also clearly emphasized that no purchase transaction had in fact taken place. Such a transaction is simulated merely for property transfer tax purposes. Consequently, the claimant was entirely absolved of paying the incidental acquisition costs.
Partners who are similarly soon to be faced with a change to the composition of a partnership should therefore act cautiously. Legal advice from a lawyer versed in tax law is essential where there are uncertainties.
ABOUT THE AUTHOR: GRP Rainer LLP
GRP Rainer LLP is an international firm of lawyers and tax advisors who are specialists in commercial law. The firm counsels commercial and industrial companies and corporations, as well as associations, small- and mid-sized businesses, self-employed freelancers and private individuals worldwide from offices in Cologne, Berlin, Bonn, Dusseldorf, Essen, Frankfurt, Hamburg, Hannover, Munich, Stuttgart, Bremen, Nuremberg and London UK.
Copyright GRP Rainer LLP
More information about GRP Rainer LLP
View all articles published by GRP Rainer LLP
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
