Functional splitting under investment law and real estate transfer tax – More than a Luxembourg special case

Not every verdict alone decides on the question that is on its cover page. This could also be the case with the judgment of the Tax Court of Baden-Württemberg of 17 December 2025 (5 K 2500/22). On the surface, it is about the change of the management company of a Luxembourg fund Commun de Placement (FCP) and the question of whether this constitutes a transfer of shares relevant for real estate transfer tax purposes pursuant to section 1 (3) no. 4 GrEStG. The Tax Court of Baden-Württemberg denies this. However, the actual significance of the decision is likely to extend far beyond Luxembourg.

The facts are quickly told. In the course of a change in the management company, the comprehensive management powers over the participations in a two-storey corporate structure with real estate located in Germany were transferred to a new management company. The tax office saw this as a transfer of the shares relevant to real estate transfer tax. The Tax Court of Baden-Württemberg did not follow this view. The administrative powers over the shareholdings had been transferred, but not the shareholdings themselves. This is because the ownership of the shares remained with the investors (copropriétaires). However, the elements of section 1 (3) no. 4 GrEStG are linked precisely to the transfer of the shares.

At this point, the actual significance of the judgment begins beyond the decided individual case.

Economically, the change of management company appears to be quite drastic. The new AIFM decides on purchases and sales, manages the fund and is responsible for its ongoing management. The economic significance of the delegated powers is therefore unquestionable. Nevertheless, in the opinion of the court, it is not sufficient. The reason for this is as simple as it is fundamental: real estate transfer tax law does not tax functions, but is linked to legal positions.

It is precisely this distinction between function and legal position that makes the judgment dogmatically valuable. It consistently distinguishes between the far-reaching management of assets and the legal position to which the respective real estate transfer tax event is linked. Accordingly, the transfer of a function does not automatically replace the transfer of the legal position required by law.

The judiciary's involvement with the question of comparable principle is not entirely new. In 2016, the Tax Court of Cologne already had to deal with a comparable dogmatic issue in connection with a German special co-ownership fund. It is true that the decision concerned a different factual element with section 1 (2) GrEStG. This was not about a transfer of shares, but about the KVG's owner-like right to exploit the properties remaining in the ownership of the investors. The realisation position, which is designed as an equivalent to the legal position, is indeed an economically shaped fact, but must also be comparable to that of an owner. And there, too, the Tax Court of Cologne did not consider the powers of the KVG associated with the management of the special fund alone to be sufficient for this purpose. Both decisions concern different real estate transfer tax facts. However, they have one central dogmatic idea in common: administrative powers do not automatically lead to the legal position to which the respective real estate transfer tax event is linked.

The decision of the Tax Court of Baden-Württemberg cannot therefore be applied schematically to all investment funds. German investment law has different models of asset allocation. All the more remarkable is the Senate's alternative consideration that the Luxembourg FCP would be comparable to a German investment fund in the form of a contract, the special fund in the co-ownership solution. Although the court expressly does not consider a type comparison to be necessary for its decision, it also clarifies that the investors (copropriétaires) remain the holders of the rights, while the management company only has the comprehensive management and disposal powers. The ruling thus confirms a basic idea of investment law: Where ownership of rights and administrative authority are legally separated, this separation may not simply be levelled out for real estate transfer tax purposes.

The judgment of the Tax Court of Baden-Württemberg extends beyond the individual case in Luxembourg. It reminds us that investment law deliberately distinguishes between ownership of rights and administrative power. Where the legislature has created this separation, it may not reunite real estate transfer tax law without an express legal basis.