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12 Jul 2018

German Constitutional Court Decision on Unitary Values

On April 10th 2018 the German Constitutional Court (hereafter “GCC”) ruled that the assessment of property tax in the “old West German states” of Germany, based on unitary values determined in 1964, was unconstitutional as it leads to major difference in treatment without sufficient justification. The unitary values were supposed to be reassessed every six years, but no reassessment has occurred since 1970. Consequently, the discrepancy between the market value of a property and its unitary value, on which the property tax assessment was based, increased. The GCC concluded that the unitary values are unconstitutional as (i) the previous legislation was not taking into account the features of properties, which did not exist in the past (i.e. energy performance, internet network performance), (ii) more than fifty percent of the properties liable to property tax were built after the unitary values were determined, (iii) changes and economic circumstances related to a property after 1964 were not taken into account and (iv) changes in the real estate market were not taken into account (i.e. rental income deriving from the properties). This decision of the GCC requires the regional governments of Germany to pass new legislation by the end of 2019.

As the property tax system in Luxembourg originates from the German tax law and is likewise based on unitary values, which, for Luxembourg, were last determined in 1941, the property tax in Luxembourg also does not reflect the real value of real estate assets and the same reasoning as above could thus be applied even though no clear discrepancy between regions exists in Luxembourg (as is the case in Germany). While this issue has been raised from time to time in the past and a working group has been put in place to explore ways to reform the property tax, it is an issue that has never gained significant traction. It will be interesting to monitor how the various political parties will handle this topic in the months leading up to the national elections of October 2018.