How is real estate transfer tax to be treated on undeveloped plots, particularly in the case of a purchase from a municipality with a development obligation? The relevant BFH ruling is outlined below.
Case in Dispute: Undeveloped Plot as Object of Acquisition
The XY spouses acquired an unbuilt and undeveloped plot from a municipality subject to a development obligation by way of a notarised purchase agreement. The purchase price covered both the unbuilt plot itself and the costs for developing the plot. The competent tax office subsequently assessed the total price, including the development costs, as the tax base for the real estate transfer tax. The XY spouses lodged an objection. The competent fiscal court, however, dismissed the action. Given the uniform purchase price (unbuilt plot and development costs), the purchase agreement was to be interpreted to mean that the municipality was required to sell the plot to the purchasers in a developed state, with the result that the entire purchase price serves as the tax base for the real estate transfer tax. The spouses lodged an appeal against the fiscal court's ruling before the BFH.
BFH Decision (II R 32/20): Tax Base for Real Estate Transfer Tax on a Purchase of Land from a Municipality Subject to a Development Obligation
In its ruling, the BFH states that, pursuant to § 8 Abs. 1 GrEStG, the tax base of the real estate transfer tax is the consideration paid by the purchaser. According to § 9 Abs. 1 GrEStG, the consideration for real estate transfer tax purposes includes all benefits provided by the acquirer, in particular the purchase price including any other obligations assumed. Decisive for the scope of the consideration in the real estate transfer tax sense is the condition of the plot at the time the purchase agreement is concluded. If a plot is already developed at the time the purchase agreement is concluded, only the developed plot can be the object of the purchase agreement. Accordingly, the acquirer must also pay the real estate transfer tax attributable to the development costs. If a plot is not yet developed at the time the purchase agreement is concluded, it must be determined whether the developed plot is the object of the transfer obligation. This assessment must be made on the basis of civil law principles. If a municipality subject to a development obligation is itself the seller and the acquirer undertakes the obligation to pay a contribution toward future development, the undeveloped plot is generally the object of the acquisition transaction and thus also constitutes the tax base for the real estate transfer tax. This applies both where a separate agreement on the development is concluded and where such an arrangement is integrated into the purchase agreement for the plot. The BFH therefore allowed the claimant's appeal, and the tax base of the real estate transfer tax was reduced in favour of the XY spouses.
Distinction from Acquisitions Involving Private Development Providers Unlike a purchase from a municipality subject to a development obligation, the situation is to be assessed differently in the case of a purchase from a private development provider. In that case, the object of the acquisition is generally the developed plot, with the result that the development costs likewise form part of the tax base for the real estate transfer tax.
Frequently asked questions
Frequently asked questions
Are development costs part of the real estate transfer tax base when buying from a municipality obliged to develop the land?
No. If a municipality obliged to provide development sells an undeveloped plot and the buyer additionally assumes the obligation to pay a development contribution, generally only the undeveloped plot is the object of the purchase. The development costs are therefore not part of the real estate transfer tax base. This applies regardless of whether the development agreement is integrated into the purchase contract or concluded separately (BFH II R 32/20).
What is the tax base of the real estate transfer tax under Sections 8 and 9 GrEStG?
Pursuant to Section 8 (1) GrEStG, the tax base is the consideration paid by the purchaser. Under Section 9 (1) GrEStG, this includes all services rendered by the purchaser, in particular the purchase price together with any other obligations assumed. The decisive factor for determining the scope of the consideration is the condition of the property at the time the purchase agreement is concluded.
How does the development status of the property affect real estate transfer tax?
If the property is already developed at the time the purchase contract is concluded, only the developed property can be the subject of the contract, and the development costs are subject to real estate transfer tax. If it is not yet developed, civil law standards must be applied to determine whether the developed property is the subject of the transfer obligation.
What is the difference when acquiring from a private development company?
When purchasing from a private development company, the developed plot itself is regularly the subject of the acquisition. In this case, the development costs form part of the assessment basis for real estate transfer tax. This contrasts with a purchase from a municipality responsible for development.
What is the practical implication of the BFH ruling II R 32/20 for purchasers of real estate?
Purchasers who acquire an undeveloped plot from a municipality obligated to provide infrastructure development and who commit to paying future development charges do not have to pay real estate transfer tax on the development portion. A single combined purchase price stated in the contract does not change this. The taxable base is accordingly reduced to the value of the undeveloped plot.