RETT: Reentry of partner in property owning partnership


Transfer of interests leads to loss of qualification as a former partner within the meaning of Sec. 1 para 2a RETTA.

The Federal Financial Court of Germany recently decided that real estate transfer tax (RETT) is due following a change of partners in a real estate owning partnership under Sec. 1 para 2a Real Estate Transfer Tax (RETTA) despite a former partner (qualifying as a former partner in terms of Sec. 1 para 2a RETTA) reentering the partnership within five years. Pursuant to the provision, RETT is triggered if at least 95 % of the partners of a partnership owning real estate change within a period of five years.

The facts of the case were as follows: Initially, A and B were partners of a real estate owning partnership in Germany, A holding a participation of one third and B of two thirds. In a first step, A transferred his interests in the partnership to A-GmbH (a German limited liability company). In a second step, which was completed within a period of less than five years, B transferred one half of his interests to A and the other half to A-GmbH. As a result, A held one third and A-GmbH two thirds of the partnership interests in the company.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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