Germany’s BFH rejects transfer-tax reduction for an overpriced property purchase

The case concerned a GmbH’s 2011 purchase of a commercial property for €1.1 million from a person close to its sole shareholder. A later property valuation was €480,000. After the seller was assessed to gift tax, the company sought a reduction of its final transfer-tax assessment. The court dismissed that claim and reversed the lower court.^[1]

Different tax consequences can coexist

The court explained that section 174(1) of the Abgabenordnung permits correction of an erroneous assessment where the same facts were taken into account adversely more than once although they should have been considered only once. It required mutually incompatible consequences under substantive law. Economic overlap between two assessments was not sufficient in this case.^[1][3]

Applying sections 8(1) and 9(1) no 1 of the Grunderwerbsteuergesetz, the court used the agreed consideration, including relevant additional obligations and reserved benefits. It retained the €1.1 million price rather than substituting the property valuation. Paying above market value did not, in this case, make the transfer-tax assessment erroneous.^[1][4]

The court distinguished the property-gift exemption in section 3 no 2 of that Act from the shareholder's benefit to the related seller through an excessive company payment. The gift-tax assessment concerned that benefit, not a gratuitous transfer of the property to the purchaser. Section 7(1) no 1 of the Erbschaftsteuer- und Schenkungsteuergesetz concerns gratuitous enrichment at the donor's expense. The two assessments could therefore coexist on the facts before the court.^[1][4][5]

Practical consequence

For groups acquiring German property, the narrow lesson is to analyse the transfer-tax base and any shareholder-related benefit separately. A gift-tax assessment elsewhere in the transaction does not itself establish a right to reopen the purchaser's assessment under section 174(1). The judgment does not determine every related-party sale or introduce a new commencement date.^[1][3][4]