World news
30 May 2019

Amendment to the real estate clause changes taxation rules for profits on the sale of real estate companies

The OECD Multilateral Instrument (MLI), which after ratification by the contractual parties modifies bilateral tax treaties concluded to eliminate double taxation, has already affected 10 double taxation avoidance treaties applied by Slovakia. The MLI inter alia modified the wording of the real estate clause in a number of these tax treaties.

Zuzana Blažejová

The real estate clause allows the contracting state in which a company owning significant real estate is established to tax the capital gain from the sale of shares in this company.

The MLI proposes two possible approaches to the real estate clause. However, the wording adopted by the already modified double taxation avoidance treaties reads as follows: „For purposes of a Covered Tax Agreement, gains derived by a resident of a Contracting Jurisdiction from the alienation of shares or comparable interests, such as interests in a partnership or trust, may be taxed in the other Contracting Jurisdiction if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50 per cent of their value directly or indirectly from immovable property (real property) situated in that other Contracting Jurisdiction.“


Below we summarise the impact of the new real estate clause on the respective 10 double taxation avoidance treaties:

Contactual country Existence of real estate clause prior to the MLI Wording of the new real estate clause
Australia Yes 365 days rule implemented
Austria No Not applicable
France Yes Modified to the above wording
Great Britain No Not applicable
Israel Yes Modified to the above wording
Japan No Above wording implemented
Lithuania Yes No change
Poland Yes Modified to the above wording
Serbia No Above wording implemented
Slovenia Yes Modified to the above wording


The new real estate clause provides a new definition of real estate companies for the purposes of double taxation avoidance treaties. This change will however affect only those double taxation avoidance treaties where both contractual countries elected to apply the respective change.


In the case of Japan and Serbia the MLI implemented a real estate clause that was previously not included in the respective tax treaties.


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