Decision could particularly affect real estate funds structured as limited partnerships

The German Federal Fiscal Court (BFH) decided that Real Estate Transfer Tax (”RETT") is triggered, if (i) a 100 per cent limited partner of a real property owning partnership concludes fiduciary agreements (Treuhandverträge) with third parties and (ii) if as a result of such fiduciary agreements the limited partner holds 95 per cent of the partnership interests as fiduciary agent (Treuhänder) for the benefit and the account of the third parties. According to the BFH, the transfer of economic title to 95 per cent of the partnership interests by way of fiduciary agreements is to be viewed as an indirect transfer of 95 per cent of the partnership interests. By way of obiter dictum, the court continued that the transfer of economic title to 95 per cent of the partnership interests should also qualify as an indirect transfer of 95 per cent of the partnership interests.

The decision concerns in particular real estate holding closed-ended funds in the legal form of a limited partnership. These funds are often structured such that a limited liability company holds 100 per cent of the partnership interests as fiduciary agent for various investors. In the case at hand, RETT was triggered after the inception of the closed-end fund when the investors came in. However, based on the decision of the BFH, closed-ended funds will also be required to monitor fluctuations occurring among their investors (if any) during the investment period, as RETT will be triggered if, over a period of five years, 95 per cent or more of the trustees should change.