Background:
The assessment basis for real estate transfer tax on a property purchase is generally the purchase price including any other obligations assumed by the buyer.
The purchase price claim is recognised at its nominal value unless particular circumstances are present which would justify a higher or lower valuation.
When the purchase contract is concluded, the parties must assume that the purchase price will actually be paid in the agreed amount. It is irrelevant whether the purchase price is in fact paid later or whether the purchase price claim fails in whole or in part.
BFH judgment of 12 May 2016:
The case concerned the question whether the failure of the purchase price claim due to the buyer's insolvency leads to an adjustment of the assessment basis for real estate transfer tax.
The BFH held that no adjustment of the real estate transfer tax is possible. Where insolvency proceedings are opened over the buyer's assets, the purchase price claim does indeed become uncollectible to the extent that the seller is not satisfied in the insolvency proceedings. However, this affects neither the validity of the purchase contract nor results in a reduction of the purchase price, since the decisive point in time is the conclusion of the contract and therefore the purchase price agreed at that point. While, under the Grunderwerbsteuergesetz, a reduction of the purchase price claim after conclusion of the contract may in principle lead to an adjustment of the assessment basis for real estate transfer tax, a partial failure of the purchase price claim due to the buyer's insolvency does not constitute a reduction of the purchase price within the meaning of the Grunderwerbsteuergesetz.
Conclusion:
Accordingly, the failure of the purchase price claim due to the buyer's insolvency does not lead to any adjustment of the assessment basis for real estate transfer tax.
Beyond the specific dispute, the BFH's decision is of general significance.
Please feel free to contact us if specific questions arise in an individual case.
Source: BFH online
Frequently asked questions
Frequently asked questions
What is the tax base for real estate transfer tax (Grunderwerbsteuer) on a property purchase?
The tax base is generally the agreed purchase price, including any other obligations assumed by the buyer. The purchase price claim is assessed at its nominal value, unless special circumstances justify a higher or lower value. The relevant point in time is the conclusion of the contract.
Does a default on the purchase price claim due to buyer insolvency reduce the real estate transfer tax?
No. In its ruling of 12 May 2016, the BFH held that a default on the purchase price claim due to the buyer's insolvency does not result in any adjustment of the assessment basis for the real estate transfer tax. The tax remains based on the originally agreed purchase price.
Why is a bad debt loss not considered a reduction of the purchase price within the meaning of the GrEStG?
Under the Real Estate Transfer Tax Act (GrEStG), a subsequent reduction of the purchase price can change the tax base. According to the BFH, however, an insolvency-related default on the receivable does not qualify as such a reduction, since the purchase agreement remains effective and the contractually agreed purchase price stays unchanged.
What is the significance of the BFH ruling of 12 May 2016 beyond the individual case?
The decision has general relevance: sellers generally cannot reduce the once-assessed real estate transfer tax if the buyer becomes insolvent and the purchase price remains wholly or partly uncollectible. For real estate transfer tax purposes, the economic risk of bad debt thus rests with the seller.
When is the purchase price claim in a real estate sale not measured at face value?
Only if special circumstances exist at the time the contract is concluded that result in a higher or lower value may the face value be departed from. A subsequent inability to collect, for example due to insolvency, does not qualify as such a circumstance and therefore does not trigger a change in valuation.