Reversing a Sales Contract for Land - Real Estate Tax Consequences

Wong purchased a building from a real estate company in 1999. Following §12 of the contract, Wong was allowed to revoke the contract within a certain period when the construction authority would not permit constructing on the purchased property as well as for some other reasons. Over the years, this revocation period was extended a few times because the authorities were slow on the uptake. The last extension was agreed upon in 2003. This right of revocation was correctly exercised by Wong in September 2003. Nevertheless, the tax office wants real estate purchase tax. The FG Münster gave its clarification on who is right on November 19, 2007 (re 8 K 2562/05 GrE).


Wong insisted on being reimbursed because the requirements of §16 GrEStG were fulfilled because the purchase was revoked. Due to the revocation, the contract became null and void so as if it were never closed. Therefore, the purchase was not to be taxed following §16 I no. 2 GrESt.

The Tax Court Münster held that the tax office correctly denied revoking its tax assessment. Wong has no right to reimbursement of the paid real estate purchase tax.

When the purchase of real estate is reversed within a period of two years after this tax matured then the tax burden can by application be undone (§16 I no. 1 GrEStG). Whenever the agreement of a period to revoke the contract has elapsed, and a new period for revoking has been agreed upon, then this "extension" can only be considered when it is exercised within the first two years after the purchase. In this reported case, the real estate purchase tax matured the acceptance of the sales contract on October 27, 1999. Therefore, the two year period ended on October 27, 2001. The last prolongation of the revocation period, however, was from September 2003. In other words, three years after the tax had become due.


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