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Grunderwerbssteuer
Land tax is the German government’s third largest source of income. However, the system is in need of a serious shake up, a fact that is recognized by the Federal Constitutional Court which has given the government until the end of this year come up with a system that no longer relies on outdated criteria.
Germany’s Federal Cabinet has adopted the law on property tax - or Grundsteuer- reform by ‘circulation procedure’, paving the way for a discussion in the Bundestag this week.
However, as befits a coalition government that has struggled to agree on what shape the reform should take, a more complex model will be used.
‘They couldn’t agree on one single concept, so they introduced a Länder-opening clause, which allows states to decide themselves whether to use the “value-dependent model” or the “area model”,’ Georg von Wallis, head of tax at law firm Greenberg Traurig in Berlin, told REFIRE. ‘This will require an amendment to the Constitution with a qualified majority in both the Bundesrat and the Bundestag.’
For the “value-dependent model”, criteria such as the land value, age of the property and rental cost will be taken into account, as set out by Finance Minister Olaf Scholz. The move has dismayed some in the property sector, which had lobbied for the “area model” to calculate the tax-based criteria, including the value of the land and the amount of floor space.
‘My personal view is that having more than one land tax model doesn’t make it messier because there are five parameters for residential properties and eight parameters for commercial properties – including the value per sqm – that will all be decided locally,’ von Wallis said. ‘If you have three houses in Berlin, they could all have different parameters/values.’
The latest plan falls short for many in the industry, including Dr. Andreas Mattner, president of the German Property Federation, the ZIA. ‘Ultimately, we’re still a long way away from a simple and bureaucracy-light law,’ he said this week. ‘This plan is still complex and controversial for the residential market.’
In February,the Federal Minister of Finance, Olaf Scholz, and the Ministers of Finance of the German Federal States published a new proposal for the Grundsteuer-Reform, which was a compromise based on various proposals touted last year, according to von Wallis.
One concern has always been the quality of data, which can vary in different municipalities, which, in turn, could potentially result in unfair taxation, according to von Wallis. The politically complicated issue is that the German municipalities benefit from the land tax but the Federal Parliament is in charge of the law that the states have the burden of implementing.
The tax rate is determined by the local municipality, which is under no legal obligation to lower the rate, according to von Wallis. ‘I think there will be a shifting of revenue in cities like Berlin,’ he said. ‘Multi-family properties will have a lower value than single family homes, so the tax burden could shift to single family homes. I think that the €14bn generated by land tax every year could increase by 15% to 20% in major cities.’
Von Wallis was surprised that the package unveiled by the government last week comprised three laws – to amend the Constitution, to allow states to implement different land tax rules (a change to the Valuation Act) and an amendment to allow an increased tax rate for empty properties. ‘This increased rate is designed to punish people for letting properties remain empty. We don’t know yet how big the increase will be but one can assume that it will be sizeable,’ he warned.
Land tax is the German government’s third largest source of income. However, the system is in need of a serious shake up, a fact that is recognized by the Federal Constitutional Court which has given the government until the end of this year come up with a system that no longer relies on outdated criteria.
For politicians, it has been a long – and arduous – journey towards an improved land tax model, following Germany’s Constitutional Court ruling last year that the country’s Grundsteuer is obsolete.
The values of homes will have to be re-evaluated, so it could take two years until people have to start paying land tax based on the new criteria. Once the new law has passed in the Bundestag, the government will have a bridging period until 2024 to start levying the tax accordingly, a timeline that reflects the work involved to reassess the country’s 35 million properties.
‘The government is still under pressure to pass the law by the year-end, otherwise the land tax law will cease to exist (and so will the money it generates) and the government has expedited the process,’ von Wallis said. ‘This week is the last week in the Bundestag though, and the law demands three hearings in parliament, which means any changes to the law are not going to be pushed through before the autumn.’ (ssk)
