German real estate transfer tax: Federal Tax Court casts doubt on potential double tax charge in M&A transactions

German real estate transfer tax (Grunderwerbsteuer; RETT) is a significant cost factor in M&A transactions involving the direct or indirect acquisition of at least a 90% stake in a company owning domestic real estate (a PropCo), even if the administration of real estate is not the primary focus of such company or the respective group to which it belongs. RETT is levied at a rate between 3.5% and 6.5% of the property’s fair market value, and the tax rate depends on the location of the relevant property. It is typically borne by the buyer as part of the overall transaction costs under prevailing German market practice in share deals. Businesses and advisors have long been concerned by the German tax authorities’ view that, under certain circumstances and based on a recent amendment of the applicable law, RETT may be charged twice in a single share deal transaction from an economic standpoint. A recent decision by the German Federal Tax Court, however, offers grounds for optimism, as discussed below.

Legal framework

In simplified terms, RETT may be triggered—possibly multiple times—during a share transaction under two main rules:

• Firstly, RETT is triggered if 90% or more of the shares in a PropCo are transferred, directly or indirectly, to new shareholders within a period of 10 years—typically upon closing of a share deal transaction (the Transfer Rule).
• Secondly, RETT is triggered if an acquirer or group of acquirers has a legal claim to acquire, directly or indirectly, 90% or more of the shares in a PropCo—typically upon an unconditional and binding signing (the Unification Rule).

Based on the relevant provisions of the German RETT Act (Grunderwerbsteuergesetz; the RETTA), it is generally agreed that the Transfer Rule takes precedence over the Unification Rule if triggered by the same underlying facts. However, according to the interpretation of the German tax authorities, this priority only applies if the conditions for both rules are met simultaneously. If signing and closing are separated in time—which is common in M&A practice—the German tax authorities generally assume that RETT can be levied twice, in particular based on a recent amendment of the RETTA. The authorities take the view that such double taxation can only be avoided through a procedural rule permitting correction of the RETT assessment under the Unification Rule, provided that all necessary RETT notifications are filed properly and in a timely manner following signing and closing—which is often not a straightforward feat (see below).

Current transaction practice

The RETT notifications must include extensive information on the transaction, the involved parties, and the affected real properties (including non-tax related information). Preparing these notifications can be particularly challenging, especially in larger, real estate-heavy transactions, due to the short deadlines (generally two weeks following signing and closing), potential legal uncertainties regarding the relevant notifying parties and competent tax offices, as well as other factors.

In transaction practice, this means that, for buyers in particular, careful, contractually secured obligations regarding information provision and the timely submission of necessary notifications are crucial to minimise tax risks.

New decision by the German Federal Tax Court

In its recently published ruling of 9 July 2025 in preliminary proceedings (Ref. II B 13/25 (AdV)), the German Federal Tax Court (Bundesfinanzhof; the Court) has, for the first time, expressed considerable doubt about the current administrative view. The Court considers it ‘legally doubtful’ whether RETT can be assessed twice in cases where signing and closing of a PropCo share transaction occur at different times. According to the Court, both the wording of the relevant provision of the RETTA and the explanatory memorandum to the law support the priority of application of the Transfer Rule; a temporal limitation of this precedence—as assumed by the German tax authorities—cannot be inferred from the law. This position is consistent with the prevailing view in tax literature, which argues against double taxation in such share deals.

In the case at hand, the time period between signing and closing was relatively short (less than three weeks). At the time of the RETT assessment, the tax office was aware that the transfer of shares had already been completed. However, as the signing had not been notified, the relevant tax office issued two RETT assessment notices and refused to only apply the Transfer Rule in precedence over the Unification Rule. The Court subsequently observed that assessing RETT twice in these circumstances contradicts the statutory priority of the Transfer Rule, at least where the authorities are aware that closing has already occurred at the time the assessment is issued.

Impact on share deals and outlook

This new decision bears high significance for RETT practice in share deal scenarios and could prompt a change in the administrative approach to the alleged double taxation at signing and closing, potentially facilitating PropCo share deals going forward. However, the subject matter of the ruling was limited to a preliminary review in interim legal protection proceedings, and the German tax authorities have not yet indicated any changes to their current practice. It will therefore be important to monitor whether the Federal Tax Court issues a confirmatory decision in main proceedings and how the German tax authorities respond.

In the meantime, clients contemplating a share deal acquisition involving a PropCo should continue to ensure correct and timely filing of all relevant RETT notifications and to obtain adequate contractual protection in share purchase agreements. In related disputes with the German tax authorities (namely where RETT has already been assessed twice), it is advisable to keep RETT notices or appeals open and, where appropriate, to apply for suspension of enforcement or a stay of proceedings.

If you would like to discuss the issues raised in this blog post, please get in touch with the authors or your usual Freshfields contact.