In its judgment of 4 June 2026 in the Nova Iberomoldes case, the ECJ provided significant guidance on the compatibility of indirect taxes in the context of the restructuring of property-owning companies.
First, the facts of the case:
The proceedings were based on a legal dispute arising in Portugal. Nova Iberomoldes was incorporated as a public limited company under Portuguese law. The share capital was contributed by the parent company not in cash but by way of contributions in kind. These contributions in kind consisted of shareholdings in various companies. The assets of one of these companies, in which Nova Iberomoldes held a 100 per cent stake following the contribution in kind, consisted of two properties. Following a tax audit, the tax authorities took the view that, under the Portuguese Municipal Tax Code, the transaction constituted a transfer of immovable property for consideration and that tax was therefore payable. The Portuguese legislation essentially provided that the transfer for consideration of ownership rights to a property situated within the country was subject to tax. The acquisition of shares in companies was also deemed to constitute a transfer in this sense if those companies owned immovable property and, as a result of the acquisition, a shareholder came to hold at least 75 per cent of the share capital.
The Portuguese court hearing the case referred the following question in particular to the ECJ: whether, in the specific case, the Portuguese municipal tax on the transfer of immovable property for consideration is compatible with the Capital Movements Directive 2008/7/EC. Article 5 of that Directive essentially prohibits Member States from levying indirect taxes on capital contributions within the meaning of Article 3 of the Capital Movements Directive or on reorganisations within the meaning of Article 4 of the Capital Movements Directive. The only exception to this is provided for in Article 6 of the Capital Movements Directive. This exception applies, amongst other things, to taxes levied on a flat-rate or non-flat-rate basis on the transfer of securities (Article 6(1)(a) of the Capital Movements Directive). Taxes on the transfer of property, including land registration taxes, levied on the contribution of immovable property situated within their territory or ‘fonds de commerce’ to a company (Article 6(1)(b) of the Capital Movements Directive) or transfer taxes on contributions of any kind to a company are permissible, provided that the transfer of such contributions is settled by assets other than shares in the company (Article 6(1)(c) of the Capital Movements Directive).
What is particularly interesting about the preliminary ruling procedure is that the Federal Republic of Germany has joined these proceedings. This is because the ECJ’s decision is very likely to have an impact on German land transfer tax as well. This is because the ‘substitute acquisitions’ referred to, inter alia, in Section 1(2b) of the Land Transfer Tax Act (GrEStG) – similar to the Portuguese legislation – also concern transactions involving limited companies in which shareholdings are transferred.
Regarding the ECJ’s ruling:
The ECJ ruled that a national provision which provides for the taxation of the formation of a company where its share capital is raised entirely through the contribution of a shareholding in another company that owns immovable property, and where the transferring company receives, in return, the entire share capital of the company thus formed, is incompatible with EU law if the tax base is determined on the basis of the tax reference value of that property or, where applicable, on the basis of the book value shown in the balance sheet.
The ECJ justifies this as follows: The levying of indirect taxes on companies pursuant to Article 5 of the Capital Movements Directive is incompatible. The Portuguese municipal tax constitutes such an indirect tax. The classification of a tax must be determined on the basis of its objective characteristics and independently of its classification under national law. It is irrelevant that the Portuguese legislation may be understood as extending the taxation of immovable property and thereby treating certain transactions equivalent to a transfer of immovable property in the same way as the actual transfer itself. What is essential is that, unlike direct taxes, it does not cover the generation of income or the ownership of assets by a taxpayer, but rather the transfer of shares in companies holding immovable property. In this context, the ECJ specifically rejected the argument put forward by the German Federal Government that the economic basis for the taxation was not the transfer of shares but the transfer of control over the real estate. The ECJ was indifferent to this, because taxation under Portuguese law simply applied to companies – albeit not generally, but only in certain cases.
The ECJ also rejected the objection that the basis of assessment was not the value of the shares contributed, but the tax value of the property in question. The prohibition on taxation under Article 5 of the Capital Movements Directive is by no means limited to taxes levied on a contribution as such. Otherwise, Article 5 of the Capital Movements Directive would run the risk of losing its practical effect (effet utile).
The ECJ also did not consider any of the exceptions under Article 6 of the Capital Movements Directive to be applicable. With regard to Article 6(1)(a) of the Directive (authorising the levying of taxes on the transfer of securities), the conditions were not met because no securities had been transferred. It is true that a transfer of shares took place, as the sole shareholder of Nova Iberomoldes had contributed her shareholdings to pay up the capital. However, these transfers did not constitute an independent transaction but rather an ancillary transaction forming part of a reorganisation within the meaning of Article 5(1)(e) of the Capital Movements Directive.
Nor did the ECJ consider that the conditions for levying a transfer tax under Article 6(1)(b) and (c) of the Capital Movements Directive were met. There was no transfer tax under Article 6(1)(c) of the Capital Movements Directive because the transfer of the contribution in kind was not remunerated by assets other than company shares. The contribution in kind by the sole shareholder of Nova Iberomoldes was made in return for the grant of shares in that company.
The exception under Article 6(1)(b) of the Capital Movements Directive did not apply because it was undisputed that no transfer of ownership had taken place. Both properties remained, in fact, the property of the company of which Nova Iberomoldes became the sole shareholder. The German Federal Government argued in the proceedings that this provision covered not only the transfer of ownership of the properties but also what it regarded as an equivalent economic transfer. From an economic perspective, it contended, a de facto transfer was, after all, subject to tax. The ECJ did not find this argument convincing. The decisive factor for the ECJ was that the taxation took place following the corporate restructuring within the group to which Nova Iberomoldes belongs. Even if an economic approach were to be adopted, it would be apparent that, in the case of a contribution in kind such as that at issue in the main proceedings, not only had there been no transfer of legal title to the properties, but there had also been no transfer of de facto ownership of those properties.
Practical notes:
The German Federal Government’s interest in the main proceedings and, above all, its arguments already indicate that the case may have significant implications for German real estate transfer tax. This is because, under German real estate transfer tax law too, certain restructuring operations within a group are subject to real estate transfer tax. Under section 1(2b) of the German Property Acquisition Tax Act (GrEStG), the transfer of 90 per cent of the shares in a company to new shareholders is taxable. A tax exemption may only be considered under the very strict requirements of section 6a GrEStG. However, pre- and post-retention periods must be observed in this regard.
The ECJ proceedings are particularly relevant to cases in which at least 90 per cent of the shares in a property-owning company are transferred to a new company by way of a reorganisation or capital increase, and the transferor thereby acquires further shares in the acquiring company.
On the basis of the ECJ ruling, it can be assumed that German land transfer tax is also, in certain cases, not in accordance with EU law. This could pave the way for certain conversions to be carried out free of land transfer tax, even without complying with the pre- and post-retention periods set out in Section 6a of the Land Transfer Tax Act (GrEStG). At present, the implications of the ECJ ruling for German land transfer tax law have not yet been clarified in a legally binding manner. It remains to be seen whether and how the German Federal Government – and, above all, the Federal Ministry of Finance (BMF) – will take the ECJ ruling into account and implement it at national level. Until the long-overdue reform of the Real Estate Transfer Tax Act takes place, the tax authorities are likely to be required to provide clarity, through administrative instructions, on how such problematic cases are to be dealt with in future.
Where economic transactions corresponding to the facts of the Nova Iberomoldes case are already the subject of property transfer tax assessment notices, or are set to become so, such notices should be challenged by lodging an objection. In any event, with reference to the ECJ’s case law in the Nova Iberomoldes case, there are sufficient grounds to suggest that the property acquisition tax assessment notices may be contrary to EU law and should be set aside.