Change of management within a real estate fund – transfer duty?

In ruling 9C_312/2023 of December 7th 2023 (to be published), the Swiss Federal Supreme Court (SFSC) confirmed the precedent set out in ATF 148 II 121, according to which Fribourg cantonal law (LDMG) allows transfer duty to be levied in the event of a change of management within a real estate fund. Indeed, insofar as this change of management entails a formal change in the owner of the properties entered in the land register (the former fund manager being struck off and replaced by the new one), the canton of Fribourg is entitled to classify this purely formal transfer as a taxable transfer and to levy the tax, even if the transfer does not entail any economic change in ownership.

In addition to confirming the case law of ATF 148 II 121, ruling 9C_312/2023 is of particular interest in practice, as the Federal Court explicitly rules on the question as to whether fund management companies are entitled to recharge the (heavy) burden of transfer taxes to their investors (which ATF 148 II 121 seemed to implicitly rule out). The SFSC answers this question in the affirmative, holding that art. 38 al. 1 let. b/c FinIA (Federal Act on Financial Institutions) and art. 37 CISO (Ordinance on Collective Investment Schemes) constitute the legal basis for such rebilling. For such rebilling to be permissible, according to the SFSC, the change of management must be in the interests of the investors (a condition which should in principle be met if FINMA approves the transfer), and the fund contract must permit such rebilling.

This ruling once again demonstrates the need for an in-depth analysis of the tax consequences when restructuring a real estate fund. Indeed, practices vary from one canton to another. Some cantons, such as Fribourg, levy the transfer tax in the event of a change of management, while others, such as Vaud, do not levy it in the event of a change of management, but will do so in the event of a transfer from one real estate fund to another, even in the absence of a change of management (CDAP/VD 2018.0207). Furthermore, in the event that transfer duty is due, it is important to ensure that the terms of the fund contract and the circumstances of the transaction allow it to be rebilled to investors. This is because the weight of the transfer duty can be significant in comparison with the returns generated by the fund (since the duty due is often around 3% of the value of the properties).