German court - Property tax based on outdated values is unconstitutional

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BERLIN (Reuters) – Germany’s constitutional court ruled on Tuesday that the basis for calculating property tax is unconstitutional as it hinges on outdated valuations, and must be reformulated by the end of 2019, with the new structure to go into effect after 2024.

The ruling followed criticism by the federal finance court, which chided legislators for failing to update the basis for the tax in western Germany, which is linked to 1964 property values.

Property taxes in former East German states are based on 1935 values. This makes property taxes higher in western Berlin than the former east, and means taxes may be low on properties near the former Berlin Wall that have since rocketed in value.

Property tax generates 14 billion euros ($17.30 billion) in revenues for local authorities annually, and affects not only property owners but also tenants through “additional costs” they pay with their rent, or so-called “Nebenkosten”.

Finance Minister Olaf Scholz said the court’s ruling on reformulating the tax basis by the end of 2019, with a view to implementation five years later, was “a constructive framework for legislators’ work that is nonetheless very ambitious”.

He said the government would soon meet state authorities and local communities to hammer out a new formula that also “ensures there are no tax increases for real estate owners, for tenants, for all those involved”.

The German DIHK industry association called for a simple, unbureaucratic approach to the new tax structure.

“From industry’s perspective the future property tax should not lead to an overall increase in tax rates,” said DIHK Managing Director Martin Wansleben.

(Writing by Paul Carrel; Editing by Andrea Shalal/Mark Heinrich)

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