Germany carries demerger holding periods into real estate transfer tax relief

The five-year test

Section 6a of the Grunderwerbsteuergesetz provides relief for specified group restructurings involving only a controlling enterprise and its dependent companies, or companies dependent on the same enterprise. The controlling enterprise normally needs an uninterrupted direct or indirect holding of at least 95% for five years before and after the transaction. Corresponding EU and EEA reorganisations can also fall within the statutory relief.^[3]

The case concerned a partnership that had owned a property company since 1993. Following its full demerger in 2010, the recipient held all the property company’s shares. The property company merged into that recipient in 2013. The tax authority refused relief because the recipient itself had held the shares for only about three years; the Court upheld relief after counting the predecessor’s ownership.^[1]

Succession carries the ownership history

The mechanism is partial universal succession. Under section 131(1) of the Umwandlungsgesetz, assets and liabilities pass as a whole according to the allocation in the demerger agreement; the transferring entity ceases to exist after a full demerger. Section 45(1) of the Abgabenordnung transfers rights and debts arising from the tax relationship to the successor.^[4][5]

The Court treated the ownership period as attached to the shareholding, rather than as a personal attribute incapable of transfer. Its holding applies where the dependent company’s shares were included in the demerger and takeover agreement. The later merger’s post-transaction holding period was not required because the property company ceased to exist through that merger.^[1]

Significance for group reorganisations

MNE groups restructuring German property holdings should document the ownership chain, the shares allocated under the demerger agreement and the qualifying later transaction. The statutory 95% threshold remains important. The judgment concerns the later merger’s relief: it does not establish that the preceding demerger itself is exempt.^[1][3][4]