According to the law, a property owner is entitled to a tax
abatement in the amount of 25 percent of the real estate tax if the
actual income generated by the property is more than 50 percent
below the usual income for comparable properties in the respective
In the case brought before the Federal Finance Court
[Bundesfinanzhof, BFH], an office and storage building had
only been partially rented out in 2008, and hence in January 2009
the owner applied to the Tax Office for a partial abatement of the
real estate for such year. The authority rejected this request,
stating that the minimum income threshold of 50 percent that was
required pursuant to the new statutory regulation had not been
Municipalities would have had a deficit of 300 million
The minimum threshold for a claim to a real estate tax abatement
was introduced by the legislator in 2008 with effect for the real
estate tax abatement of the same year. Previously, a claim to an
abatement of real estate tax had already existed if the reduction
in income had amounted to at least 20 percent, and that is to say
in the amount of 80 percent of such reduction in income.
The statutory tightening of the required income reduction
threshold was adopted by the legislator just before the expiry of
the calendar year 2008. It was therefore disputed whether or not it
is still constitutional on grounds of the violation of the
constitutional provision prohibiting retroactive effect, which
applies to laws.
The Federal Finance Court affirmed this: Had the legislator not
amended the provision, considerable unexpected tax losses would
have been the result. The Federal Finance Court and, following its
example, the Federal Administrative Court
[Bundesverwaltungsgericht, BVerwG] in 2007 and 2008,
respectively, had indeed amended their former jurisprudence to the
effect that the municipalities would have to accept lower income.
Through the amendment of the law at the end of 2008, this would be
balanced out in an amount of about 300 million euro per year. In
this way, according to the Federal Finance Court, the
constitutionally stipulated principle of proportionality is
observed (judgement dated 18 April 2012, docket no. II R
Reduction of rental income can also be typical or
Moreover, it was disputed whether or not the law still lies
within the scope of the room to manoeuvre, the so-called authority
to standardise types, that is granted to the legislator. The
Federal Finance Court affirmed this because, pursuant to the prior
amendment of the jurisprudence, the increase in the required
minimum income threshold would lead to a fair distribution of the
burden between the municipalities and the property owners.
The supreme finance court judges also explained the grounds on
which a reduction in the actual rental income would justify a real
estate tax abatement. The reduction may not be refused if it is
typical or temporary. This applies to all unresolved cases, that is
to say including cases prior to 2008. Several administrative courts
deciding on real estate tax abatements in the larger federal states
also ruled after 2008 that certain temporary or typical income
reductions did not justify a real estate tax abatement, for example
a temporary vacancy following a tenant's termination.
The Federal Finance Court ultimately made it clear that the
unconstitutionality of the taxation value assessment cannot be
asserted within the scope of proceedings concerning real estate tax
abatements. That the Tax Office calculates the real estate on the
basis of the value situation in 1964 (respectively 1935 in the new
federal states) and therewith treats old buildings like new
buildings, is perceived by many to be a violation of the principle
of equality – an issue which was also addressed by the
claimant in these proceedings. The Federal Finance Court ruled that
this problem is not the subject matter of proceedings for a real
estate tax abatement. Hence, we will initially have to await the
outcome of the constitutional complaint pending in this matter
(docket no.: 2 BvR 287/11).
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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