Federal Fiscal Court ruling: RETT group clause - holding period carries over on split-up

Group clause under section 6a of the Real Estate Transfer Tax Act: pre-retention period after a split-up

Under section 6a sentence 1 of the Real Estate Transfer Tax Act, real estate transfer tax is not levied on certain taxable transactions resulting from a reorganisation within the meaning of section 1(1) nos. 1 to 3 of the Reorganisation Act [Umwandlungsgesetz–UmwG] (merger, division, transfer of assets) or from a contribution or another acquisition on the basis of the articles of association or partnership agreement. The only parties permitted to be involved are a controlling enterprise [herrschendes Unternehmen] and companies dependent on it, or several companies dependent on one controlling enterprise (section 6a sentence 3 of the Real Estate Transfer Tax Act). A company is dependent if the controlling enterprise holds, directly, indirectly or partly directly and partly indirectly, an uninterrupted interest of at least 95% in its capital or partnership assets within five years before and five years after the transaction (section 6a sentence 4 of the Real Estate Transfer Tax Act). The pre-retention and post-retention periods are intended to prevent “unintended windfall effects” (Bundestag official publication [Bundestagsdrucksache–BT-Drucks.] 17/147, p. 10; 17/15, p. 21).

According to case law, the periods need only be observed to the extent that this is at all possible for the reorganisation qualifying for relief. In the case of a merger of a dependent company into the controlling enterprise, only the pre-retention period is therefore relevant, because the dependent company ceases to exist upon the merger (Federal Fiscal Court judgement of 21 Aug 2019, file ref. II R 21/19 (II R 56/15), Federal Tax Gazette [Bundessteuerblatt–BStBl.] II 2020, p. 344, para. 27). Where the periods can be observed, however, the Federal Fiscal Court does not dispense with them, even where abuse is unlikely (Federal Fiscal Court judgement of 21 May 2025, file ref. II R 31/22, on a hive-down to an existing entity; Federal Fiscal Court judgement of 8 Oct 2025, file ref. II R 33/23, on a contribution of shares to a newly established corporation).

In the case at issue, a limited partnership with a limited liability company as its general partner [GmbH & Co. KG] had been the sole shareholder of the property-owning F-GmbH since 1993. Two brothers held equal interests in the KG as limited partners. In 2010, each of them contributed his limited partnership interest to a newly established limited liability company [GmbH] of his own. One of these was the claimant. In the same year, the KG was split up, with its assets being transferred to the two GmbHs (section 123(1) no. 1 of the Reorganisation Act). The shareholding in F-GmbH passed to the claimant together with a business unit [Teilbetrieb]. This transaction was taxable under section 1(3) no. 4 of the Real Estate Transfer Tax Act and did not qualify for relief under section 6a of the Real Estate Transfer Tax Act, because the two GmbHs each held only half of the KG, so that there was no controlling enterprise with an interest of at least 95%. In 2013, F-GmbH was merged into the claimant. The transfer of its properties and of a heritable building right was taxable under section 1(1) no. 3 sentence 1 of the Real Estate Transfer Tax Act.

The tax office initially granted the tax relief for the merger subject to review, but denied it in 2018 following a tax audit, on the grounds that the claimant had held its interest in F-GmbH for only around three years before the merger. The Münster Fiscal Court [Finanzgericht–FG] found in favour of the claimant (Münster Fiscal Court judgement of 12 Jan 2023, file ref. 8 K 169/21 F). In its appeal on points of law, the tax office relied on item 3.2.2.1 of the coordinated Circulars of the Supreme Tax Authorities of the Federal States dated 25 May 2023 (Federal Tax Gazette I 2023, p. 995): the controlling enterprise had to meet the requirements itself throughout the entire pre-retention period. The period was strictly personal and did not pass to a successor under section 45 of the Fiscal Code [Abgabenordnung–AO]. At most, a transfer could be considered if – as with chain reorganisations (item 3.2.2.2) – the split-up itself had already qualified for relief under section 6a of the Real Estate Transfer Tax Act. The Federal Fiscal Court dismissed the appeal.

Partial universal succession preserves the pre-retention period

The post-retention period was irrelevant because F-GmbH ceased to exist upon the merger. The Federal Fiscal Court regards the pre-retention period as having been observed (para. 25 and following) and bases this on four core propositions:

• Split-up as partial universal succession: Upon registration of the split-up, the assets of the transferring entity pass in each case as a whole to the acquiring entities in accordance with their allocation in the division and acquisition agreement (section 131(1) no. 1 of the Reorganisation Act). The transferring entity ceases to exist (section 131(1) no. 2 of the Reorganisation Act). This distinguishes a split-up from a spin-off, in which the transferring entity continues to exist.
• Succession to the tax position (section 45 of the Fiscal Code): The universal successor takes over the tax debtor-creditor relationship in the state in which it stands at the time of the transfer. The requirements for tax reliefs are also determined by the circumstances of the legal predecessor. The only exceptions are strictly personal circumstances that are inseparably linked to the person of the legal predecessor. Whether such circumstances exist depends on the individual tax act concerned (Federal Fiscal Court judgement of 10 Feb 2021, file ref. IV R 38/19, para. 27).
• The periods under section 6a of the Real Estate Transfer Tax Act are not strictly personal: They are tied to holding the shareholding. For the retention periods under sections 5 and 6 of the Real Estate Transfer Tax Act, it is recognised that they pass to the universal successor upon inheritance. Owing to the identical legal effects, the same applies to a split-up. The KG’s shareholding, which had existed since 1993, was therefore to be attributed to the claimant. Taking into account its own shareholding since 2010, the claimant had thus observed the five-year period before the merger.
• No windfall effects: The split-up itself was taxable and did not qualify for relief. The transfer of the pre-retention period only has an effect for subsequent transactions, here the 2013 merger. This does not open the door to the short-term arrangements that section 6a sentence 4 of the Real Estate Transfer Tax Act is intended to prevent.

The Federal Fiscal Court sees no conflict with the view of the tax authorities: item 3.2.2.1 of the coordinated Circulars is correct, it holds, but says nothing about attribution to a partial universal successor; item 3.2.2.2 concerns the post-retention period in chain reorganisations. The Federal Fiscal Court thus turns the tax office’s argument on its head: precisely because the split-up did not qualify for relief but was taxable, windfall effects are ruled out.

The judgement does not mark a departure from the strict case law on retention periods. The Federal Fiscal Court does not dispense with the pre-retention period but regards it as fulfilled by way of attribution (para. 33). This is convincing, because the period is only intended to exclude from the relief shareholdings held within the group for a short time (Federal Fiscal Court judgement of 21 Aug 2019, file ref. II R 15/19 (II R 50/13), Federal Tax Gazette II 2020, p. 329, para. 36). It is noteworthy, however, that the attribution is linked to the civil-law form of the legal succession and not to the legal successor’s previous economic interest: until the split-up, the claimant held only an indirect 50% interest in F-GmbH. Had the shareholding been acquired by way of singular succession, the period would have started afresh. For income tax purposes, the crediting of holding periods is expressly regulated (section 4(2) of the Reorganisation Tax Act [Umwandlungssteuergesetz–UmwStG], where applicable in conjunction with section 12(3) or section 23(1) of the Reorganisation Tax Act) and is considerably restricted at crucial points (Federal Fiscal Court judgement of 17 Dec 2025, file ref. I R 9/23, Federal Tax Gazette II 2026, p. 468, on section 9 no. 2a of the Trade Tax Act [Gewerbesteuergesetz–GewStG] and share-for-share exchanges under section 21 of the Reorganisation Tax Act). For section 6a of the Real Estate Transfer Tax Act, the Federal Fiscal Court derives it from section 45 of the Fiscal Code.

Prior holding period after a split-up: practical implications

The decision facilitates multi-stage restructurings. If, for example, a company is split up in order to separate family branches of shareholders, the acquiring entity can carry out subsequent reorganisations within its group with relief under section 6a of the Real Estate Transfer Tax Act without having to wait another five years. The prerequisite is that the shareholding in the dependent company was included in the division and acquisition agreement. The allocation in the agreement (section 126(1) no. 9 of the Reorganisation Act) thus acquires significance for real estate transfer tax purposes.

In addition, the legal predecessor must itself have been a controlling enterprise during the attributed period, i.e. in particular it must have held an uninterrupted interest of at least 95% and have been economically active. Based on the court’s reasoning (para. 31), it should not be necessary for the predecessor itself to have already held the shareholding for more than five years, as it had in the case at issue. What should matter is that the holding periods together cover the five-year period.

The scope of the judgement is, however, limited. It does not readily extend to spin-offs and hive-downs, because the transferring entity continues to exist and the tax authorities do not assume universal succession within the meaning of section 45 of the Fiscal Code in these cases (Application Circular on the Fiscal Code [Anwendungserlass zur Abgabenordnung–AEAO] on section 45, no. 2; cf. Federal Fiscal Court judgement of 5 Nov 2009, file ref. IV R 29/08). Here, the decisive question remains whether a controlling enterprise – possibly one higher up in the group – meets the periods itself. By contrast, the reasoning should apply all the more to the merger of a controlling enterprise, and likewise to the continuation of a running post-retention period by the universal successor. For inheritance, the tax authorities already provide for this (item 3.1 of the coordinated Circulars). It remains open what weight is to be given to the taxability of the split-up: the Federal Fiscal Court relies on it to rule out windfall effects but did not include it in its headnote.

It remains to be seen whether the tax authorities will apply the judgement beyond the individual case. As long as it has not been published in the Federal Tax Gazette II, comparable cases should be kept open. It should be borne in mind that the determination of the requirements of section 6a of the Real Estate Transfer Tax Act in the notice of separate determination under section 17 of the Real Estate Transfer Tax Act can be challenged independently (para. 17). For planned structures, it may be advisable to apply for a binding ruling under section 89(2) of the Fiscal Code.

Finally, the case shows that the tax relief can still come under scrutiny years later. The shareholding history, including the holding periods of legal predecessors, the shareholding percentages and the commercial register entries, should therefore be documented without gaps. When choosing between a split-up and a spin-off, the real estate transfer tax consequences for later restructurings should be taken into account from the outset.