Franco-German comparison: Registration fees vs. Grunderwerbssteuer

The differences between German and French law in this area are presented on the basis of a ruling by the Lyon Court of Appeal on July 6, 2023 (no. 20/05110), which held that the transformation of a SARL into an SAS can only be relied on by the tax authorities once it has been published in the Trade and Companies Register. This has an impact on the registration fees payable on the transfer, since registration fees are calculated on the basis of the legal nature of the shares at the time of declaration.

The Lyon Court of Appeal ruled in a case where a transfer of shares had been carried out in the following way, with a view to saving the registration fees associated with the transfer:

1° First of all, the seller converted the SARL whose shares were to be sold into an SAS at an extraordinary general meeting with immediate effect.

2° The day after the extraordinary general meeting, the SAS shares were sold to a third party.

3° A few days later, a declaration of the share transfer was filed with the tax authorities, giving rise to the payment by the transferee of registration duties applicable to transfers of SAS shares. As a reminder, registration duties amount to 0.1% of the sale price, whereas they amount to 3% of the sale price less an allowance equal, for each share, to the ratio between 23,000.00 euros and the total number of shares in the company for the sale of SARL shares;

4° Two months later, the transformation minutes were registered and the formalities relating to the transformation filed with the clerk of the Lyon Commercial Court, which subsequently published the transformation in the Trade and Companies Register.

Three years after the transfer, the tax authorities sent the transferee a proposal for rectification, taking the view that the transfer was subject to the registration duties applicable to transfers of SARL shares, and requested payment of additional duties (75,455 euros) and interest for late payment (10,564 euros), arguing that the transformation of the SARL into an SAS was not enforceable against the transferee on the date of the transfer and on the date of registration of the transfer.

The Lyon Court of Appeal agreed: pursuant to article L. 123-9 of the French Commercial Code, deeds subject to registration in the Trade and Companies Register can only be opposed to the tax authorities if they have been published. In the case in point, on both the date of the sale and the date of registration of the sale, the transformation of the company had not yet been published in the Trade and Companies Register. As a result, the tax authorities were unable to take cognizance of it, and the conversion was not enforceable against them. The sale had to be treated as a sale of SARL shares, and taxed accordingly.

For this reason, advisors involved in company acquisitions must take great care to prepare the transaction thoroughly. It is not enough to sign a confidentiality agreement and a LOI, and to carry out in-depth due diligence. Tax issues must also be examined in advance, when determining the structuring and organization of the transaction over time, particularly with regard to the prior transformation of a SARL into a SAS. This also applies to the right of employees to be informed in advance of the sale of a company, as they must be informed within certain statutory deadlines before the transaction is carried out, to enable them to make an offer if necessary.

Under German law, these issues do not arise in the same way. Transfers of shares are not subject to a general registration fee. On the other hand, company transfers are subject to a specific registration fee (Verkehrssteuer) when the target company owns real estate, provided that 90% or more of the company’s shares are transferred to one and the same transferee (§ 1 para. 2b GrEStG). In such a case, a registration fee (Grunderwerbssteuer) of between 3.5% and 6.5% of the property value (assessed as part of the transfer) (§ 8 al. 2 point 3 GrEStG) is charged, depending on the Land in which the property is located. Finally, it should also be borne in mind that, in Germany, the transfer of shares in limited liability companies under German law (Gesellschaft mit beschränkter Haftung, GmbH) must be notarized, which means that notarization of the contractual documents will also depend on the notary’s availability, which experience has shown can be complicated in practice.

Our Alister Avocats – German Desk team is at your disposal to provide you with cross-border assistance and expertise, so that you can take the necessary steps to comply with the new regulations under German law.