Business past the tax authorities: Why Vonovia does not pay real estate transfer tax

One real estate company takes over another, but the real estate transfer tax does not seem to play a role.

As it became known on Tuesday, Vonovia wants to take over a majority of Deutsche Wohnen, which has around 157,500 units in its portfolio.

The real estate transfer tax has just been tightened, but in this case the tax authorities are likely to come away empty-handed.

Manfred Schäfers

Business correspondent in Berlin.

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"Union and SPD gave the shareholders of Vonovia, Deutsche Wohnen and Blackrock a million-dollar gift with their screwed-up reform of the share deals at the expense of taxpayers," criticized the Green finance politician Lisa Paus shortly after the plans became known. According to their rough calculation, it is about a tax payment, or better non-tax payment, in the order of one billion euros. Behind it are the following figures: a takeover of 18 billion euros and a real estate transfer tax of mostly 5 to 6.5 percent. The federal states are entitled to the revenue.

The director of the Institute of Finance and Taxes, Rudolf Mellinghoff, also criticizes the fact that the tax loophole was not effectively closed with the latest reform.

“We all agree that those who buy real estate should pay real estate transfer tax.

Real estate companies should not be able to circumvent this, ”said the former President of the Federal Fiscal Court of the FAZ. With the lowered participation threshold and the extended holding period, one tried to get the problem under control.

It is doubtful whether it can be solved with that.

Tax-free after five years

On May 7th, the Federal Council approved the new regulation of the real estate transfer tax, with the Union and SPD wanting to make it more difficult to circumvent the real estate transfer tax when buying real estate. It comes into force on July 1, 2021. This involves plots of land that are not sold directly, but only shares in a company that owns a plot of land or several properties, so-called share deals.

So far, an indirect change of ownership of land has only been taxed if at least 95 percent of the shares in a partnership are transferred to another hand in five years.

As a result, often only 94.9 percent was transferred directly to the new owner.

The rest were parked in an intermediary company where strangers do not have much influence.

Experts call this “RETT-Blocker” (Real Estate Transfer Tax-Blocker) for short.

After five years, the shares could then be merged tax-free.

With the reform, the participation threshold will be lowered to 90 percent and the deadline will be extended to 10 years.

In addition, this regulation is extended to real estate corporations, but not if the shares are sold on the stock exchange.

"Doubt that the stock exchange clause is sufficient here" 

MEP Paus suspects that the announced date of the merger of the real estate giants in August is no coincidence, as the new law will then be in force.

She referred to the model of her group that would make it possible to tax real estate companies proportionally from a transfer of more than 10 percent.

Mellinghoff recalls that at the hearing several experts spoke out in favor of lowering the limit value to 75 percent because they did not consider 90 percent to be sufficient.

"Personally, I don't think that the problem should be tackled that way."

In particular, groups and organs would have to be protected from high real estate transfer tax burdens in the event of a restructuring, since they would have no influence whatsoever on the restructuring, especially in the case of foreign companies. “I doubt that the stock exchange clause is sufficient here.” The tax lawyer advocates looking at whether companies only do business with real estate. In such cases, real estate transfer tax should be levied upon takeover. But only in such cases.

While the mega-deal between Vonovia and Deutsche Wohnen is likely to expire tax-free, the agreed ancillary business could end differently. The state of Berlin and its municipal companies want to take over 20,000 apartments. Finance Senator Matthias Kollatz (SPD) put the costs at a good 2 billion euros. In that case, the country's companies are likely to pay real estate transfer tax to the city-state.