ECJ “Nova Iberomoldes” (C‑837/24) – Is the German RETT Regime for Share Deals at Risk?

In its judgment of 4 June 2026, in Case C‑837/24 Nova Iberomoldes, the Court of Justice of the European Union (“ECJ”) held that a Portuguese transfer tax imposed on consolidation of shareholdings was in breach of the Capital Duties Directive (Council Directive 2008/7/EC, “Directive”). The decision, however, extends well beyond the Portuguese context. It calls into question fundamental doctrinal principles underlying the taxation of share deals and raises the issue of whether key elements of the German real estate transfer tax (“RETT”) regime remain compatible with EU law. The following insight provides an overview of the ECJ judgment, analyses its potential implications for German tax law, and outlines resulting considerations for German share deals.

Summary of the ECJ's judgment

The facts and the Court’s reasoning may be summarized as follows:

Facts

The case concerned a typical intra-group restructuring: a sole shareholder contributed several shareholdings – including shares in real estate holding companies – by way of a contribution in kind to a newly incorporated company in exchange for newly issued shares (“share-for-share exchange”). Under Portuguese tax law, the consolidation of at least 75% of the shares in a real estate holding company is treated as equivalent to a transfer of real estate and is subject to real property transfer tax (Imposto Municipal sobre as Transmissões Onerosas de Imóveis, “IMT”), calculated based on the value of the underlying real estate. As a result, the Portuguese tax authorities subjected the share-for-share exchange to IMT.

Reasoning

The ECJ first makes clear that such a share-for-share-exchange constitutes both a contribution of capital and a restructuring operation within the meaning of the Capital Duties Directive. As a result, the transaction falls within the scope of the comprehensive prohibition set out in Article 5(1) of the Directive, which prohibits not only classical capital duties but also other forms of indirect taxation if they are triggered by such transactions. Of particular significance is the Court’s restrictive interpretation of the exception under Article 6 of the Directive. While Member States may, in principle, impose transfer duties on immovable property, the Court makes clear that this exception requires an actual legal transfer of ownership of the real estate.

It is at this point that the ECJ draws a decisive line: a mere change at the shareholder level is insufficient. The determining factor is whether title to the real estate is transferred under applicable civil law. The fact that the tax is economically linked to the value of the underlying real estate, or that the transaction resembles a real estate transfer from an economic perspective, is not sufficient. In this respect, the Court explicitly rejects a substance-over-form approach and places decisive weight on the formal legal structure of the transaction.

Finally, the Court concludes that referring to general anti-abuse considerations cannot justify the imposition of such a tax. Instead, it requires that any anti-abuse rationale be grounded in specific, clearly articulated statutory provisions.

Conflicting German case law

The German Federal Fiscal Court (Bundesfinanzhof or “BFH”) ("Federal Fiscal Court") has taken a different approach up to now.

The Federal Fiscal Court has long justified the taxation of share consolidations under Section 1(3) of the German Real Estate Transfer Tax Act (Grunderwerbsteuergesetz) (“RETT”) on the basis that the tax is not imposed on the transfer of shares as such, but rather on a deemed transfer of the underlying real estate triggered by such transaction. Based on this reasoning, the BFH regards German RETT as a permissible transfer duty within the meaning of Article 6 of the Directive, despite the absence of an actual transfer of legal title under civil law (see the leading judgment issued by the Court on 19 December 2007 – II R 65/06; reaffirmed by it on 25 September 2024 – II R 36/21).

Given the new ECJ judgment, however, this line of argument appears increasingly untenable. The Court unequivocally requires an actual legal transfer of ownership and expressly rejects the notion of a merely deemed or fictitious transfer of real estate. Nor does it suffice that the taxable basis is determined by reference to the value of the underlying real estate. Therefore, the core doctrinal underpinnings of the German case law are called into question.

Further developments are already underway: the pending appeal before the BFH (II R 8/23) provides an opportunity to revisit the issue in light of the ECJ’s guidance. In parallel, a constitutional complaint (1 BvR 574/25) challenging the BFH’s decision in II R 36/21 is currently pending before the German Federal Constitutional Court. It cannot be ruled out that the matter may ultimately be referred  to the ECJ once again.

Implications for German law

We anticipate that the ECJ's Nova Iberomoldes ruling may have significant implications for German RETT:

Share consolidations – section 1(3) and (3a) RETT-Act

The ECJ ruling primarily affects the share consolidation rules under Sections 1(3) and (3a) of the RETT-Act, which are structurally comparable to the Portuguese regime at issue. These German provisions are triggered by changes at the shareholder level and, in such cases, deem a transfer of the underlying real estate, without any transfer of legal title under civil law taking place. It is precisely such constructions that the ECJ has expressly brought within the scope of the Directive and whose taxation it has, in substance, called into question.

Changes in shareholder structure – section 1(2a) and (2b) of the RETT-Act

In addition, the ruling may also extend to the provisions governing changes in shareholder structure under section 1(2a) and (2b) of the RETT-Act.

While these rules differ in technical design from the share consolidation provisions, they share the same underlying structural feature: they are triggered by shifts at the shareholder level and derive real estate transfer tax consequences from such changes by deeming a transfer of the underlying real estate to a new company, notwithstanding the absence of any transfer of legal title under civil law.

Against this background, there are strong arguments that the rationale of the ECJ applies equally here.

Intra-group exemption – section 6a of the RETT-Act

The significance of the intra-group exemption under section 6a of the RETT-Act is likely to diminish in light of the ECJ's Nova Iberomoldes judgment. If the underlying RETT provisions themselves are incompatible with EU law, the need for such exemption rules becomes questionable. This raises the broader issue of whether the German RETT regime requires a more fundamental structural overhaul.

Summary

We currently expect that the ECJ ruling may have implications for section 1(3) and (3a), as well as Section 1(2a) and (2b) of the RETT-Act, and may also affect the intra-group exemption under Section 6a.

That said, it should be noted that these provisions are not called into question per se, but only to the extent that they fall within the substantive scope of the Directive. In this regard, it is critical that the Directive applies solely to contributions of capital to corporations and qualifying partnerships, to restructuring operations involving such entities and issues of certain securities and debt instruments.

Irrespective of the above aspects the foregoing, it remains to be seen how the German tax authorities, the courts and potentially the legislature will respond to the ECJ decision.

Practical considerations

In light of the significant EU law concerns surrounding Section 1(2a) to (3a) of the RETT-Act, taxpayers would be well advised to adopt a proactive approach.

Tax appeals and litigation

In cases that are still pending, tax assessments should be formally challenged and kept open by explicit reference to the Nova Iberomoldes ruling and the Capital Duties Directive. The legal argumentation should focus on the primacy of EU law and the resulting loss of relevance of the existing case law by the BFH.

By contrast, in cases that have already become final and binding, corrective options are limited and require thorough, fact-specific analysis. Nevertheless, consideration should be given to whether procedural remedies or, where applicable, equitable relief may be available.

Tax structuring

From a structuring perspective, the classification of transactions as contributions of capital or restructuring operations within the meaning of the Directive is likely to continue to gain in importance. In particular in intra-group settings, it may be possible to deliberately structure transactions so as to meet the requirements of a transaction protected under EU law, thereby avoiding taxation at the outset.

This approach goes beyond the scope of structuring possibilities previously recognized by the BFH in its case law on section 6a of the RETT-Act, which up to now has been confined to the interpretation of a statutory exemption (see the BFH's leading judgment of 25 September 2024 – II R 2/22).

Examples

The following examples may illustrate the implications:

Example 1: The company A‑GmbH has held 100% of the shares in B‑GmbH for at least five years; B‑GmbH owns German real estate. A‑GmbH spins off its shareholding in B‑GmbH into C‑GmbH to form a new company (Neugründung) pursuant to the German Reorganization Act (Umwandlungsgesetz).

Result: The spin-off triggers section 1(3) of the RETT-Act (known as an "extension of the shareholding chain"). Under current case law, however, the intra‑group exemption under section 6a applies, regardless the fact that A‑GmbH has not held its shareholding in C‑GmbH for at least five years (known as an "teleological reduction"; see the BFH's leading judgment of 25 September 2024 – II R 2/22).

By contrast, the following situation continue to give rise to taxation even under the Court's more recent case law:

Example 2: A‑GmbH has held 100% of the shares in B‑GmbH for at least five years; B‑GmbH owns German real estate. In addition, A‑GmbH holds 100% of the shares in C‑GmbH, which it has only recently established by way of a cash contribution. A‑GmbH contributes its shareholding in B‑GmbH to C‑GmbH or transfers it to C‑GmbH by way of a spin-off under the German Reorganization Act by way of absorption.

Result: This transaction likewise falls within the scope of section 1(3) of the RETT-Act. Under current BFH case law, the exemption under section 6a does not apply due to the absence of the required holding period in relation to C‑GmbH (BFH of 21 May 2025 – II R 31/22). In light of the ECJ’s Nova Iberomoldes judgment, however, this outcome is no longer persuasive. The contribution or spin-off constitutes a transaction falling under the Directive and therefore cannot be subjected to RETT. 

In our view, the above considerations apply equally to intra-group mergers where interests in real estate–holding lower-tier subsidiaries are (directly or indirectly) affected. The decisive factor, in these cases as well, is that no civil law transfer of title to the underlying real estate occurs; as such, there is no need to invoke the relief provided under section 6a of the RETT-Act. Against this backdrop, additional latitude for argument arises, in particular, in situations involving a mere shortening of participation chains. This is the case where a direct partner/shareholder of a real estate–holding partnership/corporation constitutes the transferring entity (for example, in the context of an upstream merger). The German tax authorities, however, continue to take the position that section 1(2a) or (2b) of the RETT--Act apply in such scenarios. In this respect, close attention should be paid to the cases currently pending before the BFH under case numbers II R 24/24 and II R 2/26.

A different conclusion is warranted, however, where the transferring entity itself directly owns German real estate and such real estate is transferred under civil law in the course of the merger. In such situations, section 1(1) of the RETT-Act applies. The ECJ’s decision should not preclude taxation in these circumstances, as the transaction involves an actual transfer of legal ownership. Any exemption from tax would therefore require reliance on Section 6a RETTA.

Conclusion and outlook

The ECJ’s Nova Iberomoldes decision may mark a potential turning point for the taxation of share deals under the RETT regime. For the first time, the fundamental premise that transfers of shares can be equated with transfers of real estate has been fundamentally called into question under EU law.

That said, an immediate change in administrative practice appears unlikely. Yet momentum for a reassessment may emerge from the pending appeal before the BFH in case II R 8/23, should the German supreme tax court follow the ECJ's reasoning. At the same time, an increase in tax litigation can be expected, with taxpayers challenging the compatibility of the relevant provisions of the RETTA with EU law. Over the medium or long term, legislative action may ultimately prove difficult to avoid.

Irrespective of future developments, the ECJ’s new ruling already provides significant opportunities for defence in outstanding tax cases. Should you have any questions or wish to discuss a specific scenario, please do not hesitate to contact us.