Arnold & Porter Obtains German Supreme Tax Court Victory on RETT-Blocker Structures

February 23, 2018

In a groundbreaking decision with ramifications for German real estate and tax issues, the highest German tax court recently ruled in favor of Arnold & Porter client GmbH & Co. KG, a limited partnership in which the general partner is a limited liability company. 
GmbH & Co. KG successfully enforced a last instance decision for repayment of a six-digit amount in the course of a tax bases assessment. Their case, which addresses real estate transfer tax issues in relation to indirect changes in the shareholder structure of a partnership owning real estate, was brought to the Federal Fiscal Court (Bundesfinanzhof) to answer questions surrounding changes of shareholder status in a partnership. The Court's landmark decision influences procedural tax law and transfer tax in Germany.

Arnold & Porter Tax partner Dr. Martin Weger led the appeal procedure and argued the case in front of the Federal Fiscal Court. The landmark decision will strongly influence the counselling practice with focus on transactions in a material as well as procedural tax law respect, which is relevant as far as advice on the structuring of real estate transactions is concerned and how RETT-Blocker-structures (so-called 94/6%-model) are implemented. It also deals with the question of which audit scope the responsible tax authority needs to apply for tax bases assessment in these cases. Both are key issues when it comes to due diligence audits for partnerships holding real estate. Given the current political environment, it remains to be seen how the tax authorities and possibly the legislature will react towards the RETT-Blocker-structures in the near future.

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