German Federal Finance Court Clarifies RETT Exemptions: Important Decisions on Section 16 of the RETT Act
Legal Insights Germany
December 05, 2025In two decisions dated May 7, 2025 (II R 16/23, II R 26/23), the Federal Fiscal Court (BFH) clarified the requirements for tax exemptions in the case of share transfers in companies that own real estate. The rulings concern the interpretation and scope of application of Section 16 (2) No. 1 and No. 3 Real Estate Transfer Tax Act (GrEStG), in particular in connection with repeated transactions and the restoration of the previous ownership status, thereby strengthening the taxpayers’ positions.
Provision of Section 16 (2) No. 3 GrEStG Also Applicable to Transactions not Originally Subject to Real Estate Transfer Tax (II R 16/23)
In II R 16/23, the Federal Fiscal Court dealt with the question of whether the tax exemption under Section 16 (2) No. 3 GrEStG applies to the retransfer of shares in a real estate–owning limited liability company (GmbH) by the original transferor after a gift transfer and its subsequent revocation.
The plaintiff had transferred all shares in the real estate-owning limited liability company to his son under a contract with a right of revocation. After the death of his son, the plaintiff revoked the gift, with the result that all shares were transferred back to him.
The BFH confirms that such a retransfer as a result of the revocation of the gift falls under § 16 (2) No. 3 GrEStG, regardless of the fact that shares in a real estate holding company were transferred under civil law.
The BFH emphasized that § 16 (2) No. 3 GrEStG also applies to share transfers under § 1 (3) GrEStG, beyond the wording of the provision.
In particular, the application is not precluded by the provision of § 16 (5) GrEStG, according to which a reversal pursuant to § 16 GrEStG is only possible if notification is complete and timely. This requirement shall only be relevant if the initial transaction is subject to real estate transfer tax. If, as in the case in question, the initial transaction is not subject to real estate transfer tax and is therefore not subject to notification, § 16 (5) GrEStG is irrelevant in this respect.
Application of Section 16 (2) No. 1 GrEStG Even if the Share Consolidation Threshold Is Exceeded Again (II R 26/23)
The ruling was based on a case in which a company (the plaintiff) increased its initial 94.9% share to 100% by acquiring a further 5.1% stake. The consolidation of shares to over 95% under the law applicable at the time was reported to the tax office, but this was only done after the statutory reporting deadline had expired.
One year later, the parties agreed to retransfer the 5.1% shareholding. The tax office rejected the application for cancellation of the real estate transfer tax assessment on the grounds of a breach of the notification obligation (Section 16 (5) GrEStG).
As a result, the parties agreed to reverse the repurchase of the 5.1% stake, so that the plaintiff once again became the sole shareholder of the real estate holding company and thus exceeded the 95% share threshold a second time. The tax office then assessed the real estate transfer tax a second time. Both the appeal and the lawsuit before the local fiscal court were unsuccessful.
The Federal Fiscal Court does not share this view: rather, in the present case, the provision of § 16 GrEStG is applicable to the replenishment of the 100% shareholding and thus the exceeding of the 95% threshold. This provision aims to avoid a real estate transfer tax burden when an original state is restored. This also applies if the initial transaction (in the case in question: reduction of the 100% shareholding to 94.9%), which is later reversed, was not subject to real estate transfer tax because there was only a reduction in the shareholding and therefore no timely notification was made in accordance with Section 16 (5) GrEStG.
The only decisive factor is that, when restoring a previous state, no real estate transfer tax should be triggered for a state that only existed temporarily.
Significance for Practice
The two BFH rulings create considerable legal certainty with regard to the requirements for a reversal of real estate transfer tax pursuant to Section 16 GrEStG, particularly in the case of reversals of transactions that were not subject to Real Estate Transfer Tax.
Irrespective of this, until the rulings are recognized by the tax authorities, it seems advisable to notify the competent tax office of non-taxable circumstances within the period specified in § 16 (5) GrEStG. Furthermore, it must be ensured that in all other cases, a complete and timely notification within the meaning of § 16 (5) GrEStG is made.
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