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Real estate transfer tax on the reversal of a land purchase contract
Anyone who reverses a land purchase contract can, under certain conditions, reclaim the real estate transfer tax already paid. But what happens if the property is sold directly to a third party after the reversal?
The Administrative Court (Verwaltungsgerichtshof, VwGH) dealt with this question in a decision and made important clarifications.
In 2014 two owners sold a agricultural and forestry property for EUR 1.1 million to a limited liability company (GmbH). Although the purchase contract was entered in the land register in 2017, the property was never actually handed over. Due to civil law disputes – the sellers claimed mistake and a reduction of more than half – the purchase contract was retrospectively terminated in March 2018 by means of a termination agreement. Prior to that, the sellers had transferred the property to their daughter in November 2017 to finance the reversal. The daughter resold the property in February 2018 to another company.
The sellers applied for the non‑assessment of the real estate transfer tax, as the acquisition transaction had been reversed. The tax office rejected the application, because the sellers had not regained the same disposal authority over the property as they had possessed before the original sale. The Federal Fiscal Court (Bundesfinanzgericht, BFG) upheld this view.
Regaining disposal authority
The Administrative Court (VwGH) set aside the BFG’s finding. It clarified – a reversal within the meaning of the Real Estate Transfer Tax Act (Grunderwerbsteuergesetz, GrEStG) requires – that the original seller regains the disposal authority over the property that he had before the contract was concluded. In the present case the transfer to the daughter was merely a means of financing the reversal and not part of a pre‑planned subsequent sale. Therefore the requirement of regaining disposal authority was satisfied.
The VwGH also stressed that the three‑year period is calculated from the moment the tax liability arises. As the original purchase contract required a governmental permit, the tax liability only arose with that permit in April 2015. The reversal in March 2018 therefore occurred within the three‑year period.
Note
The VwGH decision demonstrates that in the reversal of a land purchase contract the actual regaining of disposal authority by the seller is decisive. An interim transfer to finance the reversal does not conflict with the application of the GrEStG, provided there is no pre‑planned resale to a third party.
Furthermore, when calculating the three‑year period, the moment the tax liability arises is decisive, not the conclusion of the original purchase contract. For sellers it is therefore advisable, when reversing land purchase contracts, to pay close attention to both the actual disposal authority and the deadlines set out in the Real Estate Transfer Tax Act. Professional advice is particularly recommended in this context.
In 2014 two owners sold a agricultural and forestry property for EUR 1.1 million to a limited liability company (GmbH). Although the purchase contract was entered in the land register in 2017, the property was never actually handed over. Due to civil law disputes – the sellers claimed mistake and a reduction of more than half – the purchase contract was retrospectively terminated in March 2018 by means of a termination agreement. Prior to that, the sellers had transferred the property to their daughter in November 2017 to finance the reversal. The daughter resold the property in February 2018 to another company.
The sellers applied for the non‑assessment of the real estate transfer tax, as the acquisition transaction had been reversed. The tax office rejected the application, because the sellers had not regained the same disposal authority over the property as they had possessed before the original sale. The Federal Fiscal Court (Bundesfinanzgericht, BFG) upheld this view.
Regaining disposal authority
The Administrative Court (VwGH) set aside the BFG’s finding. It clarified – a reversal within the meaning of the Real Estate Transfer Tax Act (Grunderwerbsteuergesetz, GrEStG) requires – that the original seller regains the disposal authority over the property that he had before the contract was concluded. In the present case the transfer to the daughter was merely a means of financing the reversal and not part of a pre‑planned subsequent sale. Therefore the requirement of regaining disposal authority was satisfied.
The VwGH also stressed that the three‑year period is calculated from the moment the tax liability arises. As the original purchase contract required a governmental permit, the tax liability only arose with that permit in April 2015. The reversal in March 2018 therefore occurred within the three‑year period.
Note
The VwGH decision demonstrates that in the reversal of a land purchase contract the actual regaining of disposal authority by the seller is decisive. An interim transfer to finance the reversal does not conflict with the application of the GrEStG, provided there is no pre‑planned resale to a third party.
Furthermore, when calculating the three‑year period, the moment the tax liability arises is decisive, not the conclusion of the original purchase contract. For sellers it is therefore advisable, when reversing land purchase contracts, to pay close attention to both the actual disposal authority and the deadlines set out in the Real Estate Transfer Tax Act. Professional advice is particularly recommended in this context.