Court declares German property tax system invalid in landmark ruling

BERLIN, April 10 (Xinhua) -- Germany's existing system to calculate property taxes for 35 million plots of land is invalid and must be reformed by the end of 2019, a widely-publicized ruling on Tuesday by the Federal Constitutional Court concluded.

The Karlsruhe-based court described the so-called basic values under the calculation of German property taxes as "completely outdated." The judges criticized that the current system led to "severe inequities" in the treatment of property owners.

The Federal Constitutional Court justified the short time-window for legislators to adopt a new system with view to a transition period which would last until 2024 before the full implementation thereof. The judges further estimated that the issue had formed the subject of long-standing debate in Germany and that policymakers had hence had "ample time" to consider alternative legislative models.

Under German property taxation law, authorities are tasked with re-assessing basic property values every six years. In practice, however, this process has not occurred again since 1964 due to the high bureaucratic effort involved.

The original criteria for the basic value of properties is derived from data of the year 1964 for Western Germany and 1935 for Eastern Germany respectively. German media reported that the judicial decision to overhaul this circumstance could have far-reaching consequences for the value of properties in Germany owned by national citizens and international investors alike.

Property taxes flow to communal authorities in Germany and contribute substantial and stable funds of around 14 billion euros (17.2 billion U.S. dollars) each year to their coffers. The "grand coalition" partners in the federal government have on paper already agreed to reform the national system of property taxation and announced that they would seek to grand local governments more power to combat property speculation, as well as to limit cost increases for property owners to a minimum.

Nevertheless, the newspaper Frankfurter Allgemeine Zeitung (FAZ) reported on Tuesday that taxes could rise up to sharply for individual owners following a formal re-valuation of the 35 million properties in question under a new. FAZ cited the German Real Estate Association (IZA) and warned against a prospective "tenfold increase in property taxes" on average.

German real estate industry representatives are consequently lobbying for a different type of reform in which the value of properties is measured on the basis of size rather than economic value. Such as system would not entail an "automatic increase mechanism" and would be easier to implement, according to IZA. Enditem