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The Administrative Court of Geneva has recently issued a verdict about the change of the management company in a contractual real estate fund from a real estate transfer tax (RETT) perspective. It disagrees with the Geneva Tax Administration that the transfer was subject to RETT, and thus confirms that this tax is not due in this specific situation.
There are several forms of collective real estate investment funds. While some of them have a legal personality and can legally own the properties (on behalf of the investors), this is not the case for contractual investment funds. In the absence of this capacity to become the legal owner of the properties, these collective investment funds must “delegate” this capacity to their management company. In other words, the management company that is registered in the Land Register, with a note that the property is held on behalf of the investors of the fund.
With certain exceptions provided for in the law, RETT is levied in particular on property transfers where there is a notarial deed which changes the owner in the sense of civil law. This transfer implies the registration of a new owner in the Land Register.
The case
The Geneva tax administration had a very formal approach in the event of changes of ownership in the Land Register. In the event of a change in the management company of a contractual real estate collective investment, the new management must be registered as the new legal owner but always on behalf of the investors. For the Geneva tax authorities, this change should be subject to the 3% RETT, since there was a change of owner registered in the Land Register. It therefore issued a verdict to this effect, which was contested. The case was submitted to the Administrative Court of Geneva.
The latter examined the manner in which the management company is the owner of the real estate. It came to the conclusion that it only holds the buildings in a fiduciary capacity and therefore does not have the freedom to dispose of the buildings as an ordinary owner. Therefore, the Court concludes that transactions which are related to the fiduciary holding and in which the funds, or more specifically the investors, remain the economic owners, are not subject to RETT. In other words, the beneficial owners do not change in the event of a change of management company, and therefore the transaction can take place without being subject to RETT.
Conclusion
The decision made by the Administrative Court of Geneva is excellent news. It is a step in the right direction, and means that contractual real estate collective investments are no longer captive of a management company and therefore to consider changing it. It can be seen in the context of a recent decision made by the Vaud Administrative Court, which had indicated in one of its recitals that the change of management should not trigger the Vaud real estate transfer tax as in Geneva.
