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Assumed Debt as Consideration for Real Estate Transfer Tax
When land is transferred, the real estate transfer tax (Grunderwerbsteuer, GrESt) is calculated on the value of the consideration, but at least on the land value. Assumed debts can also form part of this consideration. This also applies to debts for which only an internal assumption of performance has been agreed.
In a case before the Federal Fiscal Court (Bundesfinanzgericht, BFG) two limited liability companies transferred shares in a parcel of land to a limited partnership. The contribution‑in‑kind agreements recorded that the limited partnership assumes the liabilities of the contributing limited liability companies that underlie the mortgage rights entered in the land register. Contrary to the tax returns filed, the tax office assessed the real estate transfer tax not on the land value of the acquired parcel but on the assumed liabilities. In the appellate proceedings the BFG confirmed the tax office’s view. As no business, nor capital or co‑entrepreneur share was contributed, but only land was transferred, the Reorganisation Tax Act (Umgründungssteuergesetz) was not applicable and the related real estate transfer tax reliefs did not apply. The assumed debts are to be regarded as consideration.
Assumption of Debt in the Internal Relationship as Part of the Consideration
Against the BFG’s decisions the limited partnership lodged an appeal with the Administrative Court of Justice (Verwaltungsgerichtshof, VwGH). The taxpayer argued that the assumed liabilities should not be included in the tax base. According to the existing case law of the VwGH, only those debts that affect the seller’s assets to the seller’s advantage belong to the consideration. However, the transferring companies had not been released from liability due to the absence of a liability exemption and remained, to the extent of their participation in the appellant, liable for their respective debts. Moreover, the BFG’s decision contradicted the previous case law, according to which a debt assumed as consideration only exists if it is a liberating (exempting) assumption of debt or if the purchaser undertakes to hold the seller harmless and indemnified.
The VwGH, however, held the appeal inadmissible, stating that under the Real Estate Transfer Tax Act (Grunderwerbsteuergesetz) any monetary benefit in kind payable for the acquisition is understood as consideration. Claims secured by mortgage on the acquired land are included in the consideration when the purchaser has contractually committed to hold the former owner harmless with respect to the mortgage‑secured obligations, the internal relationship between the contracting parties being decisive. Contrary to the appellant’s legal view, debt assumptions in the internal relationship, without a liability exemption, are also to be taken into account as consideration under the Real Estate Transfer Tax Act.
Tip
If debt assumptions are agreed in land transfers, this can increase the tax base for real estate transfer tax. In principle we therefore recommend a consultation with tax experts before any land transfer to avoid uncertainties.
Assumption of Debt in the Internal Relationship as Part of the Consideration
Against the BFG’s decisions the limited partnership lodged an appeal with the Administrative Court of Justice (Verwaltungsgerichtshof, VwGH). The taxpayer argued that the assumed liabilities should not be included in the tax base. According to the existing case law of the VwGH, only those debts that affect the seller’s assets to the seller’s advantage belong to the consideration. However, the transferring companies had not been released from liability due to the absence of a liability exemption and remained, to the extent of their participation in the appellant, liable for their respective debts. Moreover, the BFG’s decision contradicted the previous case law, according to which a debt assumed as consideration only exists if it is a liberating (exempting) assumption of debt or if the purchaser undertakes to hold the seller harmless and indemnified.
The VwGH, however, held the appeal inadmissible, stating that under the Real Estate Transfer Tax Act (Grunderwerbsteuergesetz) any monetary benefit in kind payable for the acquisition is understood as consideration. Claims secured by mortgage on the acquired land are included in the consideration when the purchaser has contractually committed to hold the former owner harmless with respect to the mortgage‑secured obligations, the internal relationship between the contracting parties being decisive. Contrary to the appellant’s legal view, debt assumptions in the internal relationship, without a liability exemption, are also to be taken into account as consideration under the Real Estate Transfer Tax Act.
Tip
If debt assumptions are agreed in land transfers, this can increase the tax base for real estate transfer tax. In principle we therefore recommend a consultation with tax experts before any land transfer to avoid uncertainties.