The implementation of the property tax reform is in its final stages. Those affected have had several months to prepare their tax assessment returns and submit them to the tax authorities. Or have they? The deadline is fast approaching, yet many questions remain unanswered. Quo vadis, tax authorities? Waldemar Krause, a tax adviser at Treuhand Hannover, has given a great deal of thought to these ambiguities all about property tax done. What happens next? What about the unresolved obstacles that still remain?
Waldemar Krause is one of the many tax advisers in Germany who are currently dealing with the property tax reform. Today, he would like to raise, on their behalf, the questions that have arisen amongst his colleagues regarding the implementation of the reform. In particular, Waldemar raises the issue of the future of the property tax reform: what exactly happens once the deadline has passed or after the assessment notice has been submitted?
Paul would like to raise the first question. Key point: Section 164 of the German Fiscal Code (AO): What should I do when I receive the tax assessment notice from the tax authorities? In some federal states, these are already being sent out. Waldemar sees Section 164 as a lifeline, because the assessment can still be amended during the assessment period. This raises the question of whether or not to lodge an objection. That is what it comes down to if the tax has been set too high. The problem is that the tax assessment will not take effect until 1 January 2025. As nobody can predict the future, there are certainly doubts as to whether the whole process is in line with the constitution.
Property tax reform poses constitutional problems
The fact is that the system currently in use is structured in a very generalised way. As a result, some property owners will automatically be disadvantaged. For example, Waldemar once rang the Valuation Committee in Lower Saxony to ask how a particular standard land value had been determined. However, they were unable to explain to him how the standard land value had been arrived at. Waldemar sees this as problematic; after all, it is one of the most important factors in calculating the property tax value.
So, if there are any discrepancies, a pro forma objection will be lodged to ensure that the deadline is met. The grounds for the objection can be provided at a later date. As things stand, Waldemar cannot tell his clients how much the property tax will ultimately amount to. Even Waldemar is unsure exactly how to proceed, and
has not yet been finalised by his colleagues. As an example, he compares current plots of land in prime and less favourable locations. In one case, the standard land value is 20,000 euros; in the other, perhaps 400. Under the new calculation, the value for the prime location is roughly double. It was to be expected that the highest values would fall and the lowest values would rise. However, many property owners will not understand why they should pay more property tax for a poor location, whilst owners of prime properties save money.
Paul probes further to find out whether Waldemar expects cases to be re-examined in court. The answer is clear: Waldemar actually hopes that cases do end up in court. This is because only court rulings offer him and his sector legal certainty when providing advice. At this point, Paul asks what Waldemar thinks of the idea of a „property tax scanner“ in Opti.Tax. This refers to a feature that would allow users to run through various scenarios and questions relating to a particular property. For example, one could see how the property would fare under a different calculation model. Land registry entries under Section II can also be taken into account. A neighbouring plot of land might, for instance, have a completely different value due to a registered right of way. In this way, the tax adviser can show the client whether it might be worth lodging an objection.
Many scenarios that the authorities have overlooked
Waldemar has also raised an interesting question concerning the topic of complete refurbishment. When a building undergoes a complete refurbishment, it is effectively treated as a new build. However, not all owners can afford to fund the entire refurbishment in one go. The building is therefore refurbished bit by bit over a longer period of time. However, the law does not provide for such a phased approach. What happens, for example, if – by the time the complete refurbishment is finished after a long period – the part of the building that was refurbished first has already reached the end of its useful life? Here, Waldemar – like many of his colleagues – is calling for legal certainty.
Paul is familiar with this sort of uncertainty from a recent case. It involved a plot of land covering 77,000 square metres with several buildings, including a stadium. How should the stadium be classified? The options include sports halls and similar facilities, but not a stadium. Waldemar doesn’t have an answer to this either, but recommends engaging in open communication with the tax authorities at this stage. After all, it is ultimately up to them to make the assessment. He criticises the fact that he and his colleagues are given just four months to carry out the correct calculation, even though there are still so many uncertainties. The authorities then take a year to make the assessment. Waldemar therefore sees phoning the authorities as an effective way of applying pressure and making them realise that this approach is not acceptable.
Waldemar also expects there to be a huge margin of error. Private individuals in particular, who draw up the assessment declaration themselves, may not be familiar with all the details of the property tax reform. There are even tax advisers who do not venture into the area of property tax. Paul asks who is actually supposed to check for and identify these errors. The tax authorities will not be able to comb through all 36 million properties for errors in the two years leading up to the assessment.
There is no end in sight to the chaos
Paul asks which date should be used as the basis for the €15,000 threshold. After all, the assessment notice is being drawn up now, but the valuation will not take effect until 1 January 2025. Waldemar replies that it is always the most recent main valuation date that applies – in this case, 1 January 2022. But what about the standard land values if these are updated in 2024? Until now, there has been a charge for accessing the standard land value. For the first time, these have been made available free of charge for the deadline for submitting valuation declarations as part of the property tax reform. Will this still be the case in two years’ time, or should property owners expect to incur costs? Or will the tax authorities themselves ensure that the valuation declarations are updated with the current standard land values?
Conclusion of the discussion: Many obstacles have been created for what is a mammoth task, but not all the solutions have been found. It also seems as though the authorities have not thought through the property tax reform in sufficient detail. Why they did not opt for a more sensible approach will probably remain their secret. The reality presents us with many questions, some of which will probably have to be resolved in court.
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