A manager of a German (real estate) fund with the legal form Sondervermögen, acquired for the account of the fund all shares in a number of so-called real estate legal entities (onroerendezaakrechtspersonen) (OZRs).
The present case concerned the acquisition of shares in private limited companies with investment properties. Under German law, the Sondervermögen is regarded as a separate capital without legal personality that invests for the account and risk of the participants. The participants are each entitled to less than 1/3rd of the proceeds and value of the shares in the OZRs. Earlier the Zeeland - West Brabant District Court ruled that no real estate transfer tax was due by the manager as the manager did not acquire an interest in the shares in the OZRs. The tax inspector filed an appeal with the ‘s-Hertogenbosch Court of Appeal.
Question of law and importance
The interested party acquired the legal title of the shares in the OZRs. At dispute is whether the interest has been acquired in the OZRs by virtue of the retention/holding of the legal title, which is required for a taxable event for the levy of transfer tax.
Assessment by the Court of Appeal
The ‘s-Hertogenbosch Court of Appeal confirms the ruling of the Zeeland - West Brabant District Court that the full interest in the shares in the OZRs was acquired by (the participants in) the Sondervermögen and not by the manager.
According to the Court of Appeal it follows from the facts that the manager cannot claim the proceeds from the shares, even though the manager is legally entitled to these proceeds. The ownership rights of the manager are, in the view of the Court of Appeal, limited to such an extent that it cannot be said that the manager holds the interest in the shares in the OZRs. According to the Court of Appeal, this interest is held by the participants in the Sondervermögen.
It follows from this that no transfer tax is due in respect of the acquisition of the shares in the OZRs by the manager.
This ruling is of practical importance as a court again limits the scope of the taxable event in case of the acquisition of shares in OZRs. This could offer structuring opportunities in case of the acquisition of investment real estate by funds in which no investor holds an interest of at least 1/3rd.
In the case at hand the manager acquired the legal title of the shares in the OZRs for the account of the participants. For many unincorporated real estate funds (such as mutual funds (FGRs) and limited partnerships (CVs) in the Netherlands), the legal title of the real estate or the shares in an OZR (mandatory or not) is held via a custody entity. If the investors in the German real estate fund in question had been able to acquire full ownership of the shares directly, the acquisition of those shares would not have been subject to transfer tax at all, since none of the investors would have acquired one-third ore more of the shares.
Also for other types of real estate funds with a separate custody entity, the final outcome of these proceedings is of great importance. If this court ruling is not successfully challenged, this could mean that also other real estate funds could acquire OZRs without the levy of transfer tax. This applies, of course, provided that no investor acquires an interest of 1/3rd or more of the shares.