1 Introduction
In mid-May 2015, the Austrian government published the text of
the changes in the country's tax system that will enter into
force on 1 January 2016. One aspect of these impending changes that
has not yet been subject to wider discussion is a modification in
the rules to the Real Estate Transfer Tax ("RETT") on
Share Deals.
To date, RETT has only been triggered 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
organizationally incorporated in the other company that it does not
have a will of its own - or would be 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 2015/2016, increased
RETT volumes will also serve as one of the sources to finance
reductions in the country's income tax rate. Besides the
increase of RETT on transactions between close family members, the
finance minister also discovered an additional means of promoting
tax revenues by restricting the possibility of avoiding RETT by
choosing a share deal.
2 New taxable transactions
2.1 Transfer of shares in a partnership
By definition, a partnership has two or more shareholders.
Therefore, the acquisition of all shares by one person has not been
possible unless both shareholders belonged to the same VAT group
– a fact that was easy to avoid. Even in the case of a GmbH
& Co KG (limited partnership with the personally liable partner
being a company with limited liability) in which one person
purchased all shares in the GmbH and the only limited
partnership-share and then had economically 100% of the partnership
was considered not to be subject to RETT.
Looking to Germany, the Austrian law will now introduce the rule
that the change 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 the direct shareholders. The draft of the explanatory
notes explicitly refers to a minimum of 95% of the "directly
held" shares being passed over to new shareholders. Therefore,
a change in the indirect shareholding that may occur if the
shareholder itself is sold or the ultimate parent of the group is
sold should not be an event that triggers RETT under the new
law.
The basis for the calculation of the real estate transfer tax of
3.5% is the taxable value ("Einheitswert"),
which normally ranges between 5% and 15% of the market value.
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 5 years does not apply to
corporations, for which the law looks at the unification of the
shares in one hand and not for the transfer of shares and for which
no time limit exists for such a unification of shares.
Basically, the draft text suggests that possibilities might exist
to avoid RETT. One would be to transfer just below 95% of the
shares in a first step and then to wait at least 5 years to
transfer the remaining shares. The second possibility lies in not
transferring the shares of the partnership holding the real estate,
but rather the shares of the partners in the partnership
itself.
2.2 Transfer of shares in a corporation
Here the law will change inasmuch as that RETT is triggered if at
least 95% of all shares of the corporation are unified in the hands
of a single shareholder. In addition, not only companies belonging
to the same VAT group, but also 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 when
the minimum of 95% is reached. Therefore, it does not matter
whether the remaining shares are acquired at a later stage or in
the first step.
However, corporations mirror partnerships in that the RETT is only
triggered if a direct acquisition takes place. RETT is not
triggered in the event of the indirect acquisition of shares in the
shareholders of a corporation holding real estate.
In this case too, the basis for calculating the RETT of 3.5% is
provided by the property's taxable value
("Einheitswert"). This rate is lower than that
established in the law currently in force, whose basis is three
times the taxable value.
3 Outlook
It remains to be seen whether there will be changes made to the draft legislation before the law is finally passed by the Austrian parliament that would also hinder the above-mentioned possibilities for avoiding RETT in case of a share deal.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.