RETT: Reentry of partner in property owning partnership

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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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