German states, federal gov't agree key points of property tax reform

The German government and 16 regional states agreed on Friday on how to reform property tax calculations following a court ruling that the current system was outdated and unconstitutional. The agreement - which calls for using surface area, location and actual net rents to calculate the tax - will form the basis for a legislative proposal that must be enacted by the end of the year, and go into effect after 2024, officials said.

The two sides had been at odds over whether the property tax should reflect the value of the property, or whether it should be calculated solely on the basis of its surface area. Property tax generates 14 billion euros ($17.30 billion) in revenues for local authorities annually, and affects not only property owners but also tenants through "additional costs" they pay with their rent, or so-called "Nebenkosten".

Finance Minister Olaf Scholz said the agreement hammered out by the states and the federal government was "a socially just solution." Thomas Schaefer, the finance minister of the state of Hessen, said the agreement would simplify many valuation issues. But Germany industry groups and a taxpayers group criticised the agreement.

Eric Schweitzer, head of the DIHK German Chambers of Commerce, said focusing on rents and land valuation would lead to additional bureaucratic burdens for companies. Reiner Holznagel, head of Germany's Taxpayers' Association, said the compromise would hit students, young families and retirees in urban areas particularly hard.

Germany's constitutional court in April ruled that the property tax must be reformulated by the end of 2019 because it was based on outdated values. The basis for the tax in western Germany is linked to 1964 property values, while property taxes in former East German states are based on 1935 values. This makes property taxes higher in western Berlin than the former east, and means taxes may be low on properties near the former Berlin Wall that have since rocketed in value. ($1 = 0.8728 euros) (Reporting by Markus Wacket, Writing by Andrea Shalal, Editing by William Maclean)

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