State Aid/WTO CJ rules that exemption from real estate transfer tax in the context of a restructuring within a group is not S…

On 19 December 2018, the CJ issued its judgment in case Finanzamt B v A-Braueri (C-374/17). The case deals with a request made by A-Brauerei concerning the refusal of German tax authorities to grant A-Brauerei the exemption from the real property transfer tax which may, under certain conditions, be available under German tax law to companies acquiring a right of ownership to property in the context of restructuring procedures within certain groups of companies.

A-Brauerei, a company operating a commercial business, held 100% of the shares in T-GmbH, which owned a number of properties and was in turn the sole shareholder of another company. By an agreement dated 1 August 2012, T-GmbH transferred all of its assets, including the properties, together with all related rights and obligations, to A-Brauerei. By a notice of assessment of 7 June 2013, the Finanzamt demanded payment of the real property transfer tax allegedly payable by A-Brauerei, on the ground that the transfer to A-Braueri (as acquiring company) of the property owned by T-GmbH (as the company being acquired) as a result of the merger of those two undertakings and the transfer by comprehensive legal succession of the assets of T-GmbH to A-Braueri which that merger entailed, constituted a taxable transaction. A-Braueri appealed from this decision and the Nuremburg Finance Court, Germany upheld the action brought by A-Brauerei. In the meantime, a question was raised as to whether the tax advantage at stake could be characterised as State aid for the purposes of Art. 107 (1) TFEU.

The question raised was then whether Article 107(1) TFEU must be interpreted as meaning that a tax advantage, such as that at issue in the main proceedings, which consists of exempting from real property transfer tax the transferof ownership of a property which occurred because of a restructuring procedure involving solely companies of the same group, linked by a shareholding of at least 95% during a minimum, uninterrupted period of ve years prior to that procedure and of ve years thereafter, ful ls the condition relating to the selectivity of the advantage concerned, laid down in Article 107(1) TFEU.

According to the CJ, a measure which creates an exception to the application of the general tax system
may be justi ed by the nature and overall structure of the tax system if the Member State concerned can show that that measure results directly from the basic or guiding principles of its tax system. In that connection, a distinction must be drawn between, on the one hand, the objectives attributed to a particular tax scheme which are extrinsic to it and, on the other, the mechanisms inherent in the tax system itself which are necessary for the achievement of such objectives (judgment of 6 September 2006, Portugal v Commission, C-88/03, EU:C:2006:511, paragraph 81).

In the present case, the objective related to the proper functioning of the general tax regime at issue in the main proceedings, seeking to avoid double and, hence, excessive taxation, may therefore give good grounds for restricting the tax exemption to the restructuring procedures carried out between companies linked

by a shareholding of at least 95% during a minimum, uninterrupted period of ve years before and ve years after that procedure. Furthermore, the requirement relating to the minimum period for holding such a shareholding appears justi ed by the intention of excluding undesirable windfall effects and, therefore, of preventing abuse, by precluding shareholdings of that level, which will come to an end once the restructuring has been concluded, from being acquired for a short period for the sole purposes
of bene ting from that tax exemption. The prevention of abuse may constitute a justi cation linked to the nature or general scheme of the system concerned.

Therefore, the CJ concluded that even though the exemption introduces a distinction between undertakings which are, in the light of the objective pursued by the legal system at issue, in comparable factual and legal situations, that distinction is justi ed as it seeks to avoid double taxation and stems, to that extent, from the nature and general scheme of the system of which it forms part.