Real estate transfer tax on the rescission of a property purchase agreement

The Administrative Court (VwGH) has dealt with this issue in a decision and provided important clarifications.

In 2014, two owners sold an agricultural and forestry property to a limited liability company for €1.1 million. Although the purchase agreement was registered in the land register in 2017, the property was never actually transferred. Due to civil law disputes—the sellers claimed error and a reduction of more than half—the purchase agreement was retroactively annulled in March 2018 by means of a termination agreement.

Beforehand, the sellers had transferred the property to their daughter in November 2017 in order to finance the rescission. The daughter then sold the property to another company in February 2018.

The sellers applied for the real estate transfer tax not to be assessed, as the acquisition transaction had been reversed. The tax office rejected the application, reasoning that the sellers had not regained the same power of disposal over the property as before the original sale. The Federal Fiscal Court (BFG) confirmed this view.

Regaining the power of disposal

The Administrative Court (VwGH) overturned the decision of the BFG. It clarified that, provided a rescission within the meaning of the Real Estate Transfer Tax Act (GrEStG) has taken place, the original seller must regain the power of disposal over the property that it had before the contract was concluded. In the present case, the transfer to the daughter was merely a means of financing the rescission and not part of a previously planned resale. Therefore, the requirement of regaining the power of disposal was fulfilled.

In addition, the VwGH emphasized that the three-year period is to be calculated from the date on which the tax liability arises. Since the original purchase agreement required official approval, the tax liability only arose with this approval in April 2015. The rescission in March 2018 thus occurred within the three-year period.

Note

The decision of the Administrative Court makes it clear that the actual recovery of the power of disposal by the seller is decisive for the rescission of a property purchase agreement. An interim transfer to finance the rescission does not preclude the application of the GrEStG, provided there was no previously planned resale to a third party.

Furthermore, the timing of when the tax liability arises—not the conclusion of the original purchase agreement—is decisive for calculating the three-year period.