RETT blocker avoidance regulation

According to the German Real Estate Transfer Tax Act (RETT Act), the transfer of at least 95 per cent of the interests in a partnership holding domestic real estate or the acquisition of at least 95 per cent of the shares in a corporation holding domestic real estate triggers Real Estate Transfer Tax (RETT), regardless of whether the transfer or the acquisition has been performed directly or indirectly. In the case of an indirect transfer or acquisition, the RETT Act requires that the 95 per cent threshold has been met at each company level.

The evaluation of the 95 per cent threshold is exclusively based on a civil law approach, not on an economic approach. Based on the civil law approach, RETT could have been avoided by introducing a special-purpose vehicle (RETT Blocker Structure) through which the investor acquired only 94.9 per cent of the shares in the relevant real property holding company (or target).

In addition, the investor would hold 94.9 per cent of the interests in a partnership that acquired the remaining 5.1 per cent of the shares in the target…

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