Possibly no RETT exemption on share transactions

02/03/23

The Dutch Ministry of Finance has launched an internet consultation on the application of the RETT exemption for share transactions. It has been proposed to abolish this exemption when acquiring shares in a real estate entity ('OZR') as of 1 January 2024. The exemption does continue to apply in case the property itself is acquired directly. Responses to this consultation can be submitted until 27 March 2023.

Background

The acquisition of a qualifying interest (1/3 or more) in an OZR is in principle subject to real estate transfer tax. When the OZR – in short – owns new real estate or a building site, the acquisition of the shares is exempt from real estate transfer tax. The Supreme Court decided in 2011 that if the acquisition of the real estate itself is exempt, this must also apply to the acquisition of the shares in the company that holds the real estate. In this context, despite the literal text of the law, it is irrelevant that no VAT is due on the sale of the shares.

Legislative proposal

A share transaction may be of interest to buyers who have no or very limited right to deduct VAT. In the case of a share transaction, no VAT is due on the sale price of the shares. In principle, the advantage of a share transaction compared to a ‘brick transaction’ (direct purchase of the property) is that on balance no VAT is due on the development profit, which would lead to a cost item in the case of a brick transaction. The legislator considers this undesirable and therefore proposes to exclude the acquisition of shares in an OZR from the real estate transfer tax exemption. The purpose of the proposal is therefore to deal with situations in which a VAT benefit is obtained through a share transaction. This does not take into account that a share transaction may have been opted for for reasons other than VAT savings.

What is striking about the proposal is that share transactions where no VAT advantage is intended and/or achieved (and so the share transaction is chosen for other reasons), are also excluded from the exemption. The proposal therefore (for the time being) has a broader effect than it appears to be intended for.

The proposal also includes that the existing policy with regard to the acquisition of participations in partnerships (e.g. Dutch CVs) will also be adjusted. The concurrence exemption will also no longer apply in those situations.