In its judgement of 25 March 2026 (Ref. II R 30/25) that, in the case of a partnership owning land, both the establishment of a trust arrangement in respect of partnership shares and the subsequent transfer of civil law partnership status may give rise to land transfer tax. Consequently, a GmbH & Co. KG failed in its attempt to have one of the two tax assessments set aside.
What had happened?
In November 2013, several limited partners in a property-owning GmbH & Co. KG sold their shares to two buyers for 15 million euros. Even before the new shareholders were entered in the Commercial Register, the parties agreed that the previous shareholders should hold their shares in trust for the purchasers with retroactive effect from January 2013. The actual entry of the new limited partners in the Commercial Register did not take place until February 2014.
The tax office levied tax on both transactions: the establishment of the trust relationship in 2013 and the formal change of shareholder following the entry in the commercial register in 2014. The company contested the second tax assessment and was initially successful before the Saxon Finance Court. The Finance Court held that, for the purposes of land transfer tax, the property was no longer attributable to the company at the time of the formal change of shareholder.
The Federal Fiscal Court rules in favour of the tax office
The Federal Fiscal Court (BFH) set aside this judgement. The court made it clear that, when determining whether a shareholder is a new shareholder within the meaning of the Land Transfer Tax Act (Section 1(2a), first sentence, GrEStG), the civil law perspective is the sole determining factor. Economic considerations are irrelevant in this context.
Upon entry in the Commercial Register, A and B became partners in the partnership under civil law for the first time. The fact that they had already held an economic interest in the partnership prior to this through the trust agreement does not alter this. The Federal Fiscal Court (BFH) emphasised that anyone who had previously held an interest in a partnership solely under the law of obligations via a trust agreement is, for the purposes of direct partnership status, deemed to be new shareholder, even if he was already a beneficial owner beforehand.
Nor did the objection that the entire arrangement constituted a single transaction help matters. For the purposes of taxability under section 1(2a) of the Real Estate Transfer Tax Act (GrEStG), what matters is the transfer in rem of the company shares, i.e. the transfer that is effective under civil law, which in this case only took place upon entry in the commercial register.
No tax exemption either
The company invoked, in the alternative, the tax exemption provisions of the Land Transfer Tax Act (Section 6(3) in conjunction with Section 6(1) and Section 3(8) of the Land Transfer Tax Act). This argument was also unsuccessful. The Federal Fiscal Court (BFH) ruled that the conditions for both exemptions had not been met.
What does this mean in practice?
The judgement has significant implications for anyone wishing to acquire shares in property-owning partnerships using trust arrangements. Both the establishment of a trust relationship in respect of partnership shares and the subsequent formal transfer of partnership status may each be regarded as separate transactions subject to land transfer tax. According to this ruling, it is not straightforward to avoid double land transfer tax in such arrangements.
Anyone planning a reorganisation or the acquisition of shares in property-owning companies should have the tax implications carefully assessed in advance. In individual cases, it is advisable to seek advice from a law firm specialising in tax law.
Source: BFH rulings
This article was created with the help of AI and has been editorially reviewed.
