Austria: New Rules for Real Estate Transfer Tax on Share Deals
→ Peter Madl
The change in the Real Estate Transfer Tax in Share Deals (“RETT”) which entered into force on 1 January 2016 will enlarge the scope of the RETT to encompass share deals in partnerships and corporations where 95% of the shares are transferred or unified respectively. However, it remains possible to avoid RETT in share deals, but whether the costs connected with such avoidance schemes are worth the effort has to be considered.
On 14 August 2015, changes to the country’s tax system that entered into force on 1 January 2016 were published in the official law gazette. One aspect of these changes is a modification to the rules on RETT in Share Deals.
Until the end of 2015, RETT was triggered only if one person (or more companies which are either part of the same VAT group pursuant to sec 2 Austrian VAT Act – being economically, financially and organisationally incorporated in the other company in a way that it does not have a will of its own – or would have if they had their seat in Austria), acquired all of the shares of a corporation owning real estate in one or several steps. RETT triggered was 3.5 % of 3-times the taxable value (Einheitswert) of the real estate, with a cap at 30 % of the market value.
In the course of Austria’s Tax Reform Act, increased RETT volumes will also serve as one of the sources to finance reductions in the income tax rate. In addition to the increase of RETT on transactions between close family members, Parliament also enhanced tax revenues by making it more difficult to avoid RETT by choosing a share deal.
New taxable transactions:
Transfer of shares in a partnership
By definition, a partnership has two or more shareholders. The acquisition of all shares by one person has not been possible, therefore, unless both shareholders belonged to the same VAT group – a fact that was easy to avoid. Even where one person purchased all shares in a GmbH & Co KG (limited partnership with the personally liable partner being a company with limited liability), and the only limited partnership-share, obtaining 100 % of the ownership of the partnership, RETT did not apply.
Going forward, however, Austrian law will now introduce the rule that the transfer of at least 95 % of the substance of the partnership to new shareholders within five years constitutes a taxable event for RETT. In addition, the new tax law clarifies that shares transferred to a trustee shall be calculated for the benefit of the trustor, thus explicitly excluding the normal trust constructions which have been widely used in the past. However, the new law only looks at direct shareholders. The explanatory notes explicitly refer to a minimum of 95 % of the “directly held” shares being passed over to new shareholders. Therefore, a change in the indirect shareholding of the shareholder itself or the ultimate parent of the group should not trigger RETT under the new law.
The basis for the calculation of RETT of 0.5 % is the property value (Grundstückswert), which is derived from the value of the land and any structures on it or from an adequate price survey (Immobilienpreisspiegel). The Finance Minister is required to publish details of the calculation in an ordinance (which has not yet been released).
The explanatory notes state that this new provision should align partnerships with corporations with respect to RETT. However, this is not completely true, as the requirement that the transfer of 95 % of the shares must happen within five years does not apply to corporations (for which the law looks instead to the unification of 95 % of the shares in one hand, and for which no time limit exists).
Basically, the text suggests that several ways to avoid RETT exist. One method would be to transfer just below 95 % of the shares in a first step, and then to wait at least five years to transfer the remaining shares. Another method lies in not transferring the shares of the partnership holding the real estate, but rather the shares of the partners in the partnership itself.
Transfer of shares in a corporation
As explained above, RETT will now be triggered if at least 95 % of all shares of the corporation are unified in the hands of a single shareholder. In addition, companies belonging to a group of companies (Unternehmensgruppe) pursuant to § 9 of the Corporation Tax Act (Körperschaftsteuergesetz) will be treated as one person with respect to the unification of at least 95 % of all shares in one corporation. As is the case in partnerships, shares belonging to a trustee will be calculated for the benefit of the trustor.
In contrast to partnerships, no time limit will be applied to reaching the threshold of 95 %. Therefore, it does not matter whether the remaining shares are acquired at a later stage or all at once.
However, corporations mirror partnerships in that RETT is only triggered if a direct acquisition takes place. RETT is not triggered where shares are acquired in the shareholders of corporations holding real estate.
In this case too, RETT is calculated as 0.5 % is the property value (Grundstückswert).