The Federal Tax Court has recently issued several decisions relevant to real estate investments in Germany. Particularly noteworthy are decisions on the taxation of waiver gains of foreign real estate companies and an order for referral to the ECJ regarding group relief pursuant to Sec. 6a RETTA. Flick Gocke Schaumburg, Taxand Germany, provides an analysis of the recent real estate developments.
A. Taxation of loan waivers linked to real estate in Germany
What the Federal Tax Court said:
The Federal Tax Court’s decision of December 7, 2016 (ref. no. I R 76/14) applies to foreign corporations that are subject to limited taxation in Germany with income received from leasing and letting or the disposal of German real estate pursuant to Sec. 49(1) no. 2(f) ITA (German Income Tax Act – Einkommensteuergesetz). As the law refers to income generated by the leasing and letting or the disposal of real estate in Germany, it was questionable whether a gain from the waiver of a loan used to finance the real estate acquisition in Germany has to be considered as German source income.
Discover more: Recent developments in real estate taxation
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If the ECJ decides that Sec. 6a RETTA is prohibited state aid within the meaning of Art. 107(1) TFEU, the provision would not apply until the European Commission decides on the compatibility of the tax relief with the European Single Market. All of the pending cases would have to be suspended until this decision has been made. In the worst-case scenario, the tax relief becomes null and void with retroactive effect. This would also have a negative impact on all cases in which the taxpayer and the tax authorities rely on the RETT relief. Even a binding ruling previously issued by the tax authorities would become null and void.
