New real estate tax: possibility of providing evidence of a lower real estate tax value in the federal model (“Bundesmodell”)

A new regulation governing the assessment of land for property tax purposes was deemed necessary following various rulings by the German Federal Constitutional Court (Bundesverfassungsgericht) in 2018 (rulings from 18.04.2018 - 1 BvL 11/14, 1 BvL 12/24, 1 BvL 1/15, 1 BvR 639/11, 1 BvR 889/12). When assessing the value of land, the new law no longer stipulates that, in individual cases, an expert opinion must be used to prove that the value of the land is lower than the property tax value determined by the tax office under the so-called federal model. The German Federal Fiscal Court (BFH, Bundesfinanzhof) has now ruled on the relevant valuation regulations of the new property tax and valuation law in two interim legal protection proceedings (suspension of enforcement of property tax value assessments) in decisions dated 27 May 2024 (II B 78/23 (AdV) and II B 79/23 (AdV)).

Initially, the claimants had successfully petitioned the court of first instance to suspend the enforcement of the property tax assessments for their residential properties. The contested assessments had been issued on the basis of the so-called federal model. The statutory provisions applicable to the determination of the property tax value contain a large number of standardized and flat-rate assessments for reasons of automation and to cope with the revaluation of over 36 million economic units, without allowing for individual verification. Consequently, the tax court had serious doubts about both the legality of the contested property tax assessment notices under simple law and the constitutionality of the underlying valuation regulations.

In the BFH’s opinion, there are already doubts under simple law as to the legality of the disputed property tax assessments. When interpreting the valuation regulations in conformity with the constitution, a taxpayer must be given the opportunity to prove a lower fair market value in the event of a breach of the prohibition of excessiveness, even if the legislator has not expressly regulated such proof. Although the legislator has a great deal of scope for applying standardization and flat-rate assessments, particularly in such mass procedures as property tax. However, the prohibition of excessiveness may be violated if the property tax value determined proves to be significantly higher than normal. According to previous case law on other standardized valuation regulations, this presupposes that the determined value exceeds the proven lower market value by 40% or more.

However, the prohibition of excessiveness may be violated if the property tax value determined proves to be significantly higher than normal. According to previous case law on other standardized valuation regulations, this presupposes that the determined value exceeds the proven lower market value by 40% or more.