Assumed liabilities as consideration for real estate transfer tax

In a case before the Federal Fiscal Court (BFG), two limited liability companies (GmbHs) transferred interests in a property to a limited partnership. The contribution-in-kind agreements stipulated that the limited partnership would assume the liabilities of the contributing GmbHs underlying the liens registered in the land register. Departing from the tax returns filed, the tax office assessed the real estate transfer tax not on the property value of the acquired property, but on the assumed liabilities. On appeal, the BFG confirmed the tax office’s view. Since no business or capital or partnership interest was contributed but only a property was transferred, the Reorganisation Tax Act was not applicable and the related real estate transfer tax reliefs did not apply. The assumed liabilities were to be regarded as consideration.

Assumption of debt in the internal relationship as part of the consideration

The limited partnership lodged a revision with the Supreme Administrative Court (VwGH) against the BFG’s decisions. The taxpayer argued that the assumed liabilities should not be included in the tax base. Under the previous case law of the VwGH, only such liabilities form part of the consideration as affect the seller’s assets to their benefit. However, the transferring companies had not been released from liability due to the absence of a discharge and, to the extent of their respective interests in the appellant, remained liable for their respective debts. Moreover, the BFG’s decision ran counter to earlier case law, according to which an assumption of debt qualifying as consideration exists only where it is a privative (discharging) assumption of debt or where the acquirer undertakes to hold the transferor harmless and indemnified.

The VwGH, however, did not consider the revision admissible, as “consideration” within the meaning of the Real Estate Transfer Tax Act is to be understood as any pecuniary remunerative performance to be paid or rendered for the acquisition. Claims secured by a lien on the acquired property are included in the consideration if the acquirer of the property has contractually undertaken to hold the previous owner harmless in respect of the obligations secured by mortgage, the internal relationship between the parties being decisive. Contrary to the appellant’s legal view, assumptions of debt in the internal relationship, without release from liability, must also be taken into account as consideration under the Real Estate Transfer Tax Act.

Tip
If assumptions of debt are agreed in connection with property transfers, this can increase the tax base for real estate transfer tax. As a general rule, we therefore recommend a consultation with tax experts prior to property transfers in order to avoid uncertainties.